TAIPEI — Google plans to produce less than 1 million Pixel 5 smartphones this year, sources told Nikkei Asia, signaling a far more conservative outlook for the internet giant’s flagship device than last year.

Production could be as low as around 800,000 units for the 5G-capable flagship smartphone, which is set to be released on Sept. 30, the sources added. Google will also introduce the Pixel 4A (5G), following the recent launch on its website of the more affordably priced Pixel 4A.

Initial production for these three models this year is currently set at a modest 3 million units. Google’s total handset sales last year fell below the company’s target, and market demand this year has been further hit by the coronavirus pandemic.

Last year, Google shipped 7.2 million Pixel smartphones, according to research company IDC, falling short of the company’s ambitious target of 8 million to 10 million units — double the 4.7 million it shipped in 2018. Sales of last year’s flagship phone, the Pixel 4, were particularly weak.

For the first six months of 2020, Google shipped just 1.5 million smartphones, a sharp drop from the 4.1 million units it sold in the first half of last year, when Google introduced its first-ever budget model, the Pixel 3A, IDC data showed.

COVID-19 dealt a further blow to Google’s plans for this year by delaying production of the Pixel 4A from spring to August, sources told Nikkei. Lower-priced models like the 4A generally have smaller margins but help boost shipment volumes.

The pandemic has also disrupted Google’s aggressive diversification plan to produce all new handsets — including the Pixel 5 and Pixel 4A series — in Vietnam this year. So far, only the Pixel 4A series has entered production in the Southeast Asian country, while Pixel 5 flagship phone is currently still manufactured in Chinese city of Shenzhen, people familiar with the matter said.

“Google gave a relatively conservative order forecast this year because its flagship Pixel 4 did not sell well last year, and because COVID-19 is causing their team to stay on the safe side concerning handsets for now,” a source close to Google told Nikkei. The person added, however, that production volume is subject to adjustment depending on how the market reacts after the phones are released.

Compared with Oppo and Xiaomi, which aggressively grabbed overseas market share from Huawei, especially in Europe, Google has not significantly gained from the Chinese tech giant’s setbacks. From next year, Huawei phones will support its own mobile operating and app store — the HarmonyOS and AppGallery — after it lost access to American technologies, including Google’s Android operating system and Google Mobile Services. Huawei has called on other Chinese smart device makers to use its OS to enlarge the ecosystem, which could pose a threat to Google’s market position in the long run.

A challenge to the Google ecosystem could in turn cause a setback for the American company’s hardware ambitions. Google, like other internet technology companies such as Amazon and Alibaba Group Holding, views hardware as a strategy for locking users into its suite of software products and gathering vast stores of valuable consumer data. Google has introduced voice-activated smart speakers, wireless earbuds, headphones and other connected devices, as well as Pixelbook Go, a notebook that runs Google’s Chrome operating system. Smartphones, however, play a key role in expanding its ecosystem.

Google made impressive progress as of the first half of 2019 when it introduced Pixel 3A phone with a starting price of just $399. It also nurtured high hopes for its Pixel 4 series. Google once held the No. 4 market position in the U.S., catching Apple’s attention so much that the latter even mentioned the Pixel 3 by name when introducing its flagship iPhone 11 at its annual launch event last year.

But while its plans for smartphones have been disrupted, Google has successfully moved a meaningful portion of production of its Google Nest smart speakers, the Nest Wifi, a combination of speaker and router, and other home devices to Vietnam and Thailand. The moves are part of an aggressive move to quickly reduce the risk of relying too heavily on China amid the intensifying Washington-Beijing trade war.

Overall, the smartphone industry is forecast to decline 9.5% by shipments in 2020 as the global pandemic batters the world economy, IDC’s estimate showed.

“We previously thought 5G could become a new growth momentum for smartphone sales this year, but as the coronavirus outbreak hit the world, all the 5G infrastructure commitment has significantly slowed worldwide,” Joey Yen, an analyst with IDC, said.

“During the pandemic, people will buy other devices like notebooks, TVs and daily necessities rather than upgrade consumer electronics such as smartphones, which most people already have. We don’t see special excitement for the smartphone market this year.”

Google did not respond to Nikkei’s request for comments.

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