The smartphone is perhaps the greatest bit of tech innovation in the past decade or so. Nowadays it is in front and centre in our daily lives. Such is the importance of the smartphone that everything, including the digital economy, businesses and even the internet has had to adapt to the smartphone to stay relevant. Naturally, an industry of such scale is highly lucrative too. Three out of ten of the world’s top 10 most valuable brands have their fortunes tied to the smartphone industry, including Apple, Google and Samsung.
The smartphone industry, however, is at a crossroad at this moment in time. Traditionally lucrative markets such as the US and Europe are stagnating due to high smartphone penetration. This has resulted in somewhat stunted hardware sales growth. Manufacturers are now turning their attentions towards the fastest growing smartphone market in the world – India.
Let us have a closer look at the numbers behind the smartphone industry in India, and identify key trends dictating growth.
Smartphone Industry In India: The Past 3 Years
To get a clearer picture of smartphone shipment trends in India, we must go back a few years. A total of 17.59 million smartphones were shipped in Q1 2014 across the country. This number improved marginally to 18.4 million in Q1 2015, registering a YoY growth of 4.6%. However, there was considerable improvement in the following year, and 23.5 million smartphones were shipped in Q1 2016. This represents a massive 27.7% YoY growth. This impressive growth has continued into 2017, as 27 million shipments were made in Q1 2017 at a YoY growth rate of 14.9%.
Samsung and local vendors like Micromax and Lava dominated the landscape at the beginning of 2014. Micromax even briefly dethroned Samsung as the top dog in Q4 2014. The dominance of Indian vendors continued into Q1 2015, but this was about to change very soon.
Entry of Chinese Smartphone Players In India
The subsequent explosion in sales during Q1 2016 was in part due to the entry of Chinese OEMs in the market. Vendors like Xiomi, OPPO, Vivo and LeEco, gained popularity with aggressive marketing, new products and competitive pricing. This dominance of Chinese vendors has also continued in Q1 2017, where a significant growth driver was the demand for 4G enabled handsets spurred by the launch of Reliance Jio.
Of course, the second quarter is generally more lucrative than the first when it comes to the smartphone industry. This is due to a larger number of product launches during this period. From Q2 2014 to Q2 2015, the smartphone industry saw tremendous growth from 18.4 million shipments to 26.5 million. This represents a YoY growth of nearly 44%! The credit for this impressive growth can largely be attributed to additional avenues for sales and simpler distribution networks like eTailers. Growth in Q2 2016 has been somewhat disappointing, with minimal increase of 1 million units to bring up the total to 27.5 million shipments.
The third quarter is the most profitable of all when it comes to the smartphone market in India. There has been steady growth from Q3 2014 to Q3 2015 to Q3 2016 with 23.3 million, 28.3 million and 32.3 million shipments, respectively. This represents YoY growth of 21.5% from 2014 to 2015, and 14.1% from 2015 to 2016. Once again, the 4G LTE smartphones and aggressively priced sub ~$200 devices were driving the smartphone shipments growth in 2014-2015. While 4G smartphones, online distribution channels and the success of Chinese vendors were driving the shipments growth in 2014-2015.
The story is a bit different when it comes to the fourth quarter. We saw an appreciable growth from Q4 2014 to Q4 2015 from 22.2 million to 25.6 million shipments at 15.4% YoY growth. However, shipment growth stagnated in the following year, with only 25.8 million shipments in Q4 2016. It is quite likely that the stagnation in growth in 2016 was mainly due to demonetization. The Indian government decision to demonetize larger currency denominations during late 2016 caused a severe cash crunch. As a result, smartphone shipments suffered as demand fell.
India: The Seasonal Market
Smartphone shipments in India follow a very consistent seasonal pattern. Q2 and Q3 are traditionally the most lucrative quarters, with Q1 generally being the least lucrative. This makes sense as Q1 lacks high-profile device launches, while Q3 is flush with them. The general pattern is of consistently growing smartphone shipments from Q1 to Q3. This is followed by a dip in Q4. This is a curious trend, especially since the Q4 holiday period is lucrative in the markets like the US. However, Q1 2017 has bucked this trend, and sales have actually increased 4.7% vis-a-vis Q4 2016. This is likely due to pent-up smartphone demand post demonetization.
Similar to QoQ changes, the Average Selling Price (ASP) of smartphones in India has been varying capriciously. In 2014, the ASP in India was $138. This number fell to $132 in 2015, a depreciation of 4.3%. This is likely due to advancements in smartphone hardware technology, which has allowed the production of cheaper smartphones with decent specs. The ASP remained constant in 2016, with a light depreciation to $131. However, 2017 saw a massive rise in ASP to $155, a YoY growth of 18.3%. This can be attributed to the increased proliferation of more expensive 4G phones, and the demand for more premium smartphones as per capita income rises.
State Of Major OEMs In India
One area where there has been a massive shift over the past few years is the market share of various OEMs in India. At the start of 2014, Samsung and Indian vendors ruled the market, with Micromax and Karbonn enjoying the market share of 15% and 10%, respectively. Indian vendors continued to perform admirably, with Micromax even managing to overtake Samsung briefly in Q4 2014. In fact, Indian vendors continued to perform admirably and accounted for 41% of the market in Q1 2016.
However, as we outlined before, this situation changed drastically in merely one year. By Q1 2017, the market share of local vendors has been whittled down to nothing. Now Micromax leads a desperate bunch with a measly 3.3% market share. Meanwhile, Chinese OEMs increased their market share from 15% in Q1 2016 to 51% in Q1 2017! In fact, the only other relevant player in the Indian market is Samsung. They have managed to maintain their dominant position with 28% of the market.