As the Subscriber Identity Module (SIM) market comes out of the COVID-19 and chipset shortage phase, the market is not out of the woods yet, with a new set of market challenges, trends, and dynamics to which the market must adjust and transition. This ABI Insight sheds light on the critical questions ecosystem players should be asking themselves and outlines ABI Research’s expectations related to each.
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The Never-Ending List of SIM Market Challenges
The Subscriber Identity Module (SIM) card market (a combination of removable and Embedded SIM (eSIM) solutions) is forecast to grow from 4.34 billion units in 2023 to 4.67 billion in 2028.
Despite overall growth forecast, 2028 expectations are a far cry from a market that, prior to COVID-19, comfortably shipped in excess of 5 billion units annually. Throughout 2019 to 2021, the market was hampered by myriad challenges, including, but not limited to COVID-19, localized regulation, and extended contract periods. Even though the SIM market has come out on the other side of these challenges, 2022 brought with it the chipset shortage and, now in 2023, a string of new challenging dynamics are present, which will set the tone for a market that will have many ups and downs over the next 5 years.
This ABI Insight takes a look at these challenges in further detail, highlighting the critical questions that need answering and the likely outcome from each.
The Critical Questions That Need Answering
A number of key areas could significantly impact the SIM market over the next 3 to 5 years. These can be summarized across six critical questions, as outlined below. The ability to understand, in detail, each question, the potential impact, and a likely timeline will help ecosystem players best prepare and ultimately execute on strategies specifically targeting these areas:
- How is the chip shortage impacting the SIM card market and when will the shortage begin to ease?
- What is the expected impact of inflation, high Consumer Electronics (CE) device prices, and consumer spending habits?
- How will eSIM-only devices impact the removable classical SIM card market over the next 5 years?
- Where will the next eSIM-only smartphone devices be deployed and when?
- When will China embrace smartphone eSIM?
- How will SGP.32 be received, and will the specification help drive additional eSIM uptake within the realms of the Internet of Things (IoT)?
The chipset shortage, as of 2H 2023, can be considered largely over with the worst of the shortage having passed. Although a level of allocation remains, supply and demand are evening out. New foundries have been qualified in the short term, alongside significant investment in constructing new fabs to help mitigate any mid- to longer-term supply constraints.
Inflation continues to impact and set the economic tone of 2023. Ultimately, inflation is reducing consumer spending power, which will have a direct knock-on effect on cellular device shipments, as consumers look to cut spending and, thus, not renew handsets as regularly. Significant limitations to growth are beginning to be felt, driven by inflation and reduced consumer spending. The consumer market will be the worst hit area and previous 2023 overall Year-over-Year (YoY) growth expectations of +7.2% have now been reduced to -2% to reflect the evolving macroeconomic trends.
eSIM is now beginning to have a market impact. With Apple eSIM-only smartphones devices, first shipping into the U.S. market at the end of 2022 and with the first full year of Apple eSIM-only smartphone shipments into the U.S. market in 2023, it is clear that this is having a significant and immediate impact on the U.S. removable SIM cards market. In North America, ABI Research’s current forecast assumption is that removable SIM card shipments in 2023 will decrease by 100 million compared to 2022. From here, the market will continue to decrease, although not at as fast a pace, with no expectation (currently) of other Original Equipment Manufacturers (OEMs) launching eSIM-only devices in the U.S. market in the shorter term.
Where will the next eSIM-only smartphone device launch is a question on everyone’s lips and rumors are rife. What is certain is that Apple has made its intentions clear and that eSIM-only is its future goal. Countries that command high iOS market share and volumes will be the likely destination for Apple’s eSIM-only smartphone expansion with the United Kingdom, Germany, France, and Japan hot contenders, likely be begin in 4Q 2024.
China, given the sheer size of its market, and the fact that consumer eSIM has been embraced within other consumer categories, most notably smartwatches, is an ecosystem worth monitoring, and is anticipating potential smartphone adoption and support of timelines. However, a lack of smartphone support, continued government resistance, and limited eSIM purchasing options leave a lot of uncertainty and unknowns. Despite these unknows, the consensus is that China cannot avoid eSIM smartphone adoption forever and it is now a case of when, rather than if, with 2025 a likely execution date.
The SGP.32 specification will break down support barriers, allow the use of existing Subscription Manager Data Preparation (SM-DP) infrastructure, and provide a provisioning mechanism that recognizes the capability of a certain device, and will then define whether said device should be provisioned over Short-Messaging Services (SMS), Internet Protocol (IP), or another channel. The SGP.32 specification was ratified in 2Q 2023, with the first Proof of Concept (PoC) connections coming in the fall of 2023, with 2024 viewed as a critical year and one of significant traction as more SGP.32-capable devices come to market, joined by existing connections transitioning over to the SGP.32 spec over the longer term.
ABI Research's Recommendations
- To help mitigate against any future chipset shortage impact, partially driven by current and future political uncertainty, strategic regional repositioning has been evident, and vendors should look to expand sourcing beyond Asian foundries to provide an additional layer of sourcing security and flexibility.
- As it relates to inflation, SIM card vendors should look to reposition consumer mobile offerings, placing emphasis on future revenue streams, including eSIM to begin off-setting the slowdown in the smartphone market.
- eSIM Integrated Circuit (IC) manufacturers should not consider the smartphone market as a high-volume growth area in the short term and understand that the market outlook will be more conservative than previous expectations, especially with regard to the global economic downturn.
- eSIM vendors should look to prioritize certain geographic areas for eSIM-only smartphone device support, notably those where iPhone use is particularly prevalent, anticipating where Apple will expand next, taking note of countries that command a high iOS market share, paired with volumes.
- Those vendors with a foothold in China can look at diversifying eSIM target market opportunities beyond smartphones in the shorter term, but should already be preparing for eSIM smartphone support.
- Vendors should focus on standardizing according to the new SGP.32 specification to gain an advanced competitive foothold in a largely nascent market. SGP.32 will accelerate the IoT market, and ecosystem players need to be ready to roll with PoCs already in the pipeline.