By Jonathan Cassell, Lead Analyst at Supplyframe Commodity IQ
The smartphone market began 2025 on a promising note, with hopes of a moderate rise in end demand driven by increasing sales of AI-equipped products. However, the year is shaping up to be a disappointment both in terms of sales growth and purchasing conditions, as tariffs take their toll on supply and demand.
U.S. smartphone sales began the year in a positive fashion, as shipments rose at a healthy rate in Q1 as consumers accelerated purchases in anticipation of expected tariffs. However, global smartphone shipments are now set to increase by less than 1% this year, according to a forecast issued at the end of May, down from the February outlook of more than 3% growth.
Although smartphones are on the list of products exempted from U.S. reciprocal tariffs imposed in early April, import duties are still playing a significant role in suppressing demand this year. The Trump administration has threatened to impose a 25% penalty on imports of all smartphones produced outside the U.S. The expected tariff is projected to cause the average selling prices of smartphones to rise in the mid-single-digit range this year, spurring a slowdown in U.S. sales growth in subsequent quarters. U.S. shipments are now expected to rise by less than 2% in 2025.
Furthermore, AI may not be such a significant driver of market growth this year. Although Apple unveiled a range of AI upgrades for the iPhone at its Worldwide Developers Conference in early June, the announcements were more evolutionary than revolutionary, with the company offering features already found in competitors’ products.
Global wireless chip revenue was expected to rise by 10% this year, according to one researcher, driven by increased end sales and the growing value of chips in smartphones due to the addition of AI acceleration features. The impact of tariffs and a lack of compelling AI features is likely to result in a diminished growth outlook for semiconductors and other components employed in smartphones.
Normally, a slowdown in electronic component sales growth would benefit buyers, resulting in higher part availability and reduced lead times. But in the tariff era, nothing is normal. Due to low inventories and shipping delays, lead times for critical components employed in smartphones and other wireless applications are rising sharply in the second quarter.
Inventories have fallen as pre-tariff ordering activity surged in both Q1 and Q2. Meanwhile, ocean freight has experienced significant fluctuations in activity, as many sailings were cancelled. With low capacity utilization among suppliers, the supply constraints have led to depleted inventories and extended delivery times.
The Commodity IQ Lead Time Indexes for analog amplifier circuits, crystals/resonators, oscillators and RF and microwave ICs all rose by double digits in April, and increased again in May. RF and microwave ICs led the surge in lead times, with the index soaring by 80% in April, followed by another 31% rise in May.
Current conditions present a conundrum for buyers. On one hand, the rise in lead times may signal a looming shortage, compelling buyers to build up their stockpiles. On the other hand, buyers should be wary of overstocking amid the weak demand outlook.
Purchasing management organizations should closely monitor both inventory and sales trends to maintain optimal supply levels.