Resilience in India’s Smartphone Market: 2023 Recap
Source and Citation: Article published by ET Bureau in Economic Times on January 19, 2024.
Analysis for a Layman
India’s smartphone market demonstrated resilience in 2023, narrowly avoiding steep shipment declines witnessed in previous years. The market contracted by just 2%, reaching approximately 148 million units. Market trackers Canalys and Counterpoint Research attribute this to a boost in festive season sales, along with the introduction of affordable 5G phones by major brands like Xiaomi and Samsung, preventing downtrading to feature phones.
The rebound in the sub-₹10,000 entry-level segment and Apple’s 40% growth at the above ₹45,000 premium end reveal polarized demand trends. Looking forward, the smartphone industry anticipates growth in 2024 driven by tech upgrade cycles and more feature-rich budget 5G offerings.
Impact on Retail Investors
For minority shareholders in listed handset makers, optic fiber firms, telecom service providers, and gear vendors, the near-term demand resilience signals potential growth in the mobile industry despite macroeconomic uncertainties. Consumers’ openness to affordable feature upgrades allows brands to target specification enhancements, driving premiumization rather than engaging in pricing wars. Investors should assess portfolios of 5G offerings at various price tiers for major vendors, considering their R&D budgets and hardware component supply security.
Impact on Industries
A steady 150 million+ smartphone market provides a bullish outlook for domestic manufacturing under PLI schemes, supporting the scaling up of capacities. Telecom carriers benefit from modest 5G feature phone substitutions, aiding in Average Revenue Per User (ARPU) uplift.
Foreign Institutional Investors (FIIs) gain confidence in discretionary spending stability for Indian consumers, which is positive for the broader economy. Short product refresh cycles ensure steady demand for ancillary industries like glass, semiconductors, packaging, and logistics.
If the affordability focus persists, smaller brands may gain market share, keeping leaders like Xiaomi and Samsung competitive. Growth forecasts may attract new foreign entrants, considering India is one of the last significant open smartphone markets along with Southeast Asia and the MENA regions.
Long Term Benefits & Negatives
Over the longer term, analysts estimate India’s smartphone user base potential could reach 800 million unique subscribers, indicating significant room for upgrades across price tiers as incomes rise. Falling 5G handset prices with localized manufacturing can expedite both urban and rural adoption curves.
While there are risks of demand contraction due to potential recessionary pressures and currency volatility leading to price hikes, the structural factors, such as young demographics and underpenetration, suggest that India’s mobile adoption seems secured.
Short Term Benefits & Negatives
In the near term, smartphone players experience relief from inventory backlogs as demand stability allows adjustments in procurement and production cycles. Component costs may start softening, allowing for margin improvements after a prolonged squeeze.
Brands benefit from replacement purchases as older 4G users in metro cities upgrade, and festive gifting demand aids in decongesting warehouses, generating cash flows. However, rural demand uncertainty persists due to high inflation, and any global recession in the second half of 2023 can create overcapacity issues. Despite these challenges, indicators suggest that the worst demand shocks seem to have abated, with consumers finding ways to manage budgets rather than forfeit mobility.
Potential Gainers and Losers from the Indian Smartphone Market Recovery
Indian Companies Likely to Gain:
- Smartphone manufacturers:
- Xiaomi India: Maintains market leadership and benefits from strong festive season performance, affordable 5G offerings, and potential continued growth in the sub-₹10,000 segment. Market sentiment likely positive.
- Reliance Jio: Increased demand for 5G phones could further boost Jio’s user base and average revenue per user (ARPU), leading to positive market sentiment.
- Micromax and Lava: Potential to regain market share in the sub-₹10,000 segment with strong 5G offerings, benefiting from government programs like free phone distribution in Rajasthan. Positive sentiment if they capitalize on this opportunity.
- Phone component suppliers: Indian companies like Dixon Technologies and UTL could see increased demand for their components as local manufacturing picks up due to 5G rollout and replacement cycles. Potentially positive market sentiment.
- E-commerce platforms: Platforms like Flipkart and Amazon could see continued growth in smartphone sales due to strong online demand and festive season promotions. Positive market sentiment if they offer competitive deals on 5G phones.
Indian Companies Potentially Less Impacted:
- Apple India: Continued strong growth in the ultra-premium segment (above ₹45,000) despite a flat overall market. Market sentiment likely remains positive due to brand loyalty and high-end offerings.
- Other premium phone manufacturers: Companies like Samsung and OnePlus might face increased competition in the premium segment from iPhone, impacting growth. Market sentiment could be neutral or slightly negative depending on their 5G strategies.
Global Companies Likely to Gain:
- Qualcomm and MediaTek: Leading chipset providers could benefit from increased demand for 5G smartphones in India. Positive market sentiment if they cater to both budget and premium segments effectively.
- Samsung Electronics: Strong global brand presence and diverse product portfolio could help them maintain market share across various price segments. Positive market sentiment if they adapt to local preferences and price their 5G offerings competitively.
- Apple Inc.: Continued growth in the ultra-premium segment strengthens their global position and reinforces India’s importance as a high-growth market. Positive market sentiment due to brand reputation and premium offerings.
Global Companies Potentially Less Impacted:
- Chinese phone manufacturers: Companies like Oppo and Vivo might face pressure from Xiaomi and local brands in the budget segment. Market sentiment could be neutral or slightly negative if they struggle to adapt to changing market dynamics.
Important Note:
This analysis is based on the provided information and current market conditions. It is not financial advice and investors should conduct their own due diligence before making any investment decisions.