Is the worst over for India's smartphone industry?

The Indian smartphone market had peaked in the January-March quarter of 2021 with 38 million units shipped. (Stock Image)
The Indian smartphone market had peaked in the January-March quarter of 2021 with 38 million units shipped. (Stock Image)

Summary

  • Industry experts, however, remain cautious about the prospects of a more substantial revival, as macroeconomic concerns continue to exert pressure on consumer sentiment

NEW DELHI : Pandemic lockdowns and remote work sparked a scramble for smartphones in India, a tide that ebbed as the world returned to normal. After a two-year slump that followed, sales appear to have turned the corner in the March quarter, promising cheer for phone makers in the world's second-largest smartphone market.

Smartphone shipments in the March quarter rose 5% from a year earlier to 32.5-35 million units, data gathered from four industry analysts showed.

Smartphone sales peaked in the March quarter of 2021 with 38 million units, according to data from International Data Corp. (IDC) India. Shipments have fallen since then, dropping 3% year-on-year in Q1 of 2022 and a further 16% in Q1 of 2023.

“We’re expecting to see smartphone shipments (for the March quarter) to be anywhere between 33 and 35 million, which signals a good, healthy start to the year. This growth is coming despite the fact that average selling prices have not reduced in the past three years," said Upasana Joshi, research manager at IDC India.

A revival is critical for Samsung, Xiaomi and Vivo, which collectively sold devices worth about $38.8 billion in India last year. This figure has remained stagnant since 2021, when it grew nearly 29% to hit $38.4 billion. In 2022, both value and volume of the overall smartphone industry declined.

Industry experts said that while the resilience of the value of the India smartphone market is a good sign, this cannot sustain in the long run—thereby making a revival of consumer demand leading to higher shipments critical for the country’s mostpopularbrands.

To be sure, these estimates are based on preliminary market data. Detailed reports from Counterpoint India and IDC India are expected in the next three weeks.

Xiaomi, which led India's smartphone market for five years until the September quarter of 2022, is using the momentum to change its product strategy.

“Our Redmi Note 13 series of affordable smartphones generated 2,000 crore in revenue within just one month of launch in this quarter. The nationwide 5G rollout and our premiumization push has stimulated demand," a company spokesperson said. “We are also expanding our ecosystem offerings and expect a significant increase in average selling prices through this year."

Samsung, India’s top smartphone brand by market share at the end of 2023, declined to comment.

Although the increase is modest, it comes as good news for phone makers, since device prices have gone up, fetching more sales revenue.

“Consumers are likely showing signs of adapting to the new market norms, where buyers are spending around $250 ( 21,000) for a device, as against $150 ( 13,000) from around five-odd years ago," Joshi of IDC India said.

For instance, although shipment volume in Q1 2024 was similar to that of Q1 2020, the average selling price has risen to $255 ( 21,000) from $199 ( 16,000). Consequently, the first quarter of 2024 generated about $8.3 billion in market value, a 28% increase in four years, which analysts consider significant amid weak consumer sentiment.

For perspective, even at the peak of market demand, the first three months of 2021 registered an average selling price of $227 ( 18,500)—registering $8.7 billion in market value.

“These growth metrics show that the India market has remained resilient despite multiple factors, because of which we expect a 5-6% overall growth in smartphone shipments in the first three months of this year," said Tarun Pathak, research director at Counterpoint India.

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However, industry veterans called for caution, noting that macroeconomic concerns continue to exert pressure on consumer sentiment. Strategic product launches have been limited, and there has been a noticeable shift towards the refurbished and second-hand smartphone market, facilitated by the rise of organized retailers in this segment.

“The overall prevalent macroeconomic conditions mean that the weak consumer sentiments have remained persistent," Pathak added.

Manish Khatri, partner at Mumbai-based retailer Mahesh Telecom, said demand has dropped by around 25% since the peak of 2021.

“There’s little happening by way of innovation in the mass market, which is why customers aren’t interested, and look at the second-hand smartphone market for options. As retailers, we are seeing demand for premium devices, which is why the value of margins that we earn have at least remained consistent even amid a volume drop," he said.

Khatri, however, added that many long-time retailers are now moving to completely different industries, bogged down by lacklustre global indicators of weak electronics sales in at least the near-term. “Many have moved to apparel and accessories businesses, while others are also into finance-related ventures today."

An analyst at a third research firm said the elections boost typically seen every five years is missing this time.

“Campaigns and road shows did not generate the kind of momentary demand that we have seen in smartphones in previous elections. Until the general elections are over, we don’t expect to see any government-driven market demand—we somehow seem to have missed the bus on this," the analyst said on condition of anonymity.

Another analyst from a fourth firm voiced concerns about the sustainability of the current market dynamics, particularly the limits of premium device sales in a value-driven market like India.

“Brands are so far keeping happy since the industry value has remained resilient. This cannot be sustained in the near future, since you can sell only so many premium devices in the long run—especially in a value-centric market such as India," the analyst said.

“The ASPs will not keep on rising forever, and financing schemes are a temporary way to keep the market ticking," the analyst added. “Soon enough, this could be cause for concern, since 5G has not really contributed to users upgrading as yet—consumers cannot see a big difference between general services of 4G and 5G networks."

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