Smartphone outlook bleak amid inflation and high device prices

Rising smartphone prices and general inflationary pressures are significantly hurting demand for devices in India, the world’s second largest market, where quarterly declines in year-on-year shipments have been persistent. The outlook is also bleak, with market trackers and retailers signaling rising inflation and a likely further increase in smartphone prices in the coming months amid a surge in covid cases in China, complicating chain issues. of supply for handset manufacturers.

“Early indicators point to both declining shipments and declining demand. Demand is affected due to inflationary pressure on consumer income and spending,” said Navkender Singh, research director at IDC India. “Additionally, there are signs of an increasing replacement cycle, which means consumers are keeping their current device a little longer (compared to 2019/20) and delaying the purchase.”

Rising component costs also mean that brands do not find the entry level – which accounts for nearly 75% of the market by volume – as profitable, opting to move up the price scale to the mid-premium segment with margins higher, Singh said.

“Brands find themselves caught between a rock and a hard place, facing declining demand in higher price segments, but unable to lower prices due to supply constraints,” Singh added.

This leads to a lack of organic customer growth.

First-time smartphone buyers are unable to enter the smartphone market due to higher smartphone acquisition costs, resulting in slower conversion of feature phone users to 4G/5G smartphones .

“There’s no reason for anyone to upgrade. So what brands have done is they’ve been hanging on to a particular price point but as the cost of components has gone up consumers aren’t able to see a major upgrade at that particular price point said Madhav Sheth, vice president of rapid smartphone growth. Realme brand.

“We also fell into this trap, but we are trying to keep up the pace, thinking about how to differentiate our products,” he added.

Handset brands Xiaomi, Vivo and Samsung did not respond to emails seeking comment.

A Croma store manager in New Delhi said smartphone visits and queries have declined. Chandu Reddy, director of Sangeetha Mobiles, said there was more demand for refurbished smartphones. “People are also taking advantage of financing options to buy more expensive models, but generally longevity has gone up, which is why there’s been a drop in shipments.”

The Indian smartphone market was down 3% year-on-year in the first quarter of 2022, according to Strategy Analytics, and 1% according to Counterpoint Research.

Strategy Analytics said it expects a tough full year for smartphone vendors in the country.

“This is the third consecutive quarter of annual decline for the world’s second largest market. Continued declines have hardly been associated with the Indian market which consistently recorded double-digit growth prior to the covid pandemic,” Strategy Analytics said.

He also predicted higher device prices over the next few quarters due to rising inflation amid the ongoing war in Europe.

Strong pent-up demand from the covid curbs in 2021 and where consumers just wanted to go out and spend, drove shipping volumes up. “This factor is largely missing in the current year,” said Rajeev Nair of Strategy Analytics.

But he expects the second half to be better than the first as smartphone vendors and retailers pull out all the stops with discounts and financial schemes to boost sales during the period’s all-important holiday season. October-November which generally represents a third of the year. Sales. The global semiconductor shortage is also expected to ease in the second half of 2022, according to a Component Tracker report from Counterpoint Research.

Despite a likely recovery, the Indian market is only expected to see an annual growth of 4% in shipments in 2022 to 170 million, compared to an 11% growth in 2021, Nair predicted.


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