Contrary to the forecasted dip in global electronic device shipments, India’s device sales, especially smartphones, are expected to soar, offering good opportunities for device makers, component suppliers, distributors and the other players involved.
By Baishakhi Dutta
As forecasted by a recent Gartner report, worldwide shipments of devices like PCs, tablets and mobile phones will total 2.2 billion units in 2019, which is a 3.3 per cent decline, year over year. The report states that globally, the mobile phone market is set to record the worst performance among these device types, declining by 3.8 per cent. However, the challenges faced by the global electronics market will not affect the Indian device and allied components industry, as experts predict that sales are expected to increase further here, especially on the smartphone front.
Where is the real growth happening?
When Gartner talks about the mobile phone market, it refers to the feature phone and smartphone segments. Research firm techARC predicts that India will see at least 13 per cent growth in smartphone sales by the next fiscal year. At the global level, the penetration of 4G smartphones has already reached saturation levels, and there is not much scope for it to grow, at least not in this year. So, the next growth phase in the global smartphone market will be driven by 5G.
Analysts claim that regardless of perceptions, the feature phone still holds a substantial market share in India. For example, if 350 million mobile phones are sold in India in a year, of these, at least 100 million are feature phones. However, a better analysis of feature phone shipments is possible if we go deeper into sub-categories. The popularity of the Jio phone has led to the impression that the market for feature phones is growing, which is not the case. For a better understanding of the market, Jio phones should be treated as a separate category.
With respect to volumes, feature phones are very much around and will continue to be sold in India. But their sales are declining, and that is a trend that will only continue.
So where does the real business lie? Various research firms opine that it is the smartphone market that will see real growth in India in the coming two to three years, and the feature phone market, which already operates under low margins and a lower revenue base, will shrink.
To support this view, research from Counterpoint’s Market Monitor service indicates that smartphone shipments in India grew to 37 million units, during Q2 of 2019-20, setting a second-quarter shipment record. The growth was driven by new launches, price cuts on older devices, and channel expansion across brands.
Contraction of the PC and tablet market
PC shipments in India fell by 8.3 per cent in the January-March quarter of 2019 to 2.15 million units, registering a year-on-year decline for the third consecutive quarter, according to research firm IDC. The market remained weak due to lower consumer demand, high inventory from previous quarters, and supply issues for Intel chips. However, the ongoing trade dispute between the US and China, with the potential imposition of tit-for-tat tariffs, is likely to impact the PC market this year, predicts Gartner.
According to techARC, the market for tablets has to be looked at from an enterprise viewpoint and from a consumer point of view. As an enterprise device, a tablet is not convenient for the generation of content. On the consumer side, tablets have become pretty expensive (in comparison to smartphones, which are cheaper). Also, the tablet as a calling device has not been a success. Therefore, tablets have not found much success globally.
PCs and tablets are in any case not manufactured in India. However, Counterpoint predicts that, in the near future, we are going to see always-connected PCs and laptops from Qualcomm. India will get to see such technology within the next two to three years, which according to analysts, will boost the domestic laptop market. With this always-connected PC, users will get continuous Internet connectivity on their systems.
Good news for component players
A majority of the research firms suggest that every component player who diversifies in the right segment will grow in the coming years. Globally, a lot of smartphone component players have already started to diversify into products like wearables, kids’ watches and smart watches. Quite a few smartphone OEMs have launched Android watches, smart bands, fitness bands, and are also venturing into IoT products. And many component players such as display manufacturers are now focusing on other segments like automotive, since the demand for touch screens is increasing in the automobile sector.
So far, based on the data collected, the real fortune lies in smartphones. Undoubtedly, it is a lucrative opportunity for component manufacturers and distributors to focus on this segment. In terms of exports, Africa is still a region where feature phones can be sold. Experts feel that the time is ripe for component players to gradually phase out investments in feature phone infrastructure, start consuming whatever volumes they can produce right now and export it. At the same time, they can strengthen their smartphone capabilities by investing in smartphone components, which is the need of the hour.
Products likely to witness demand
With a dip in the demand for feature phones, the physical keypads and monochrome displays will go off the market completely. Smaller RAM of 5MB or 12MB, and even 1GB of RAM, 4GB of ROM and smaller memory will no longer be in demand, going forward. Small screen of 4.57cm will also get phased out completely as the shift from feature phones to smartphones happens.
On the other hand, OLED screens and camera modules will witness great demand. Higher memories will rule the market (256GB, 512GB and 1TB) and by early 2020, the first phone with 1TB memory is expected to hit the Indian market. At the same time, smartphones with 256GB or more are expected to cost less than Rs 20,000. The demand for higher memory is on the rise, and this trend will continue as the prices of memories fall.
On another front, with the rise of connected cars and advanced driving techniques, more and more memory players have started concentrating on the automotive segment as these components are required in huge quantities. Apart from these, techARC predicts that demand is likely to be generated by broadband routers, Wi-Fi access points and switches.
Prospects for Make in India
It is obvious that it is now more lucrative to make a smartphone rather than a feature phone. The Indian smartphone market has a huge potential, considering the eventual upgradation of all current feature phone users. Seeing this, a lot of companies that build components and smartphones are now migrating towards India. Samsung has been exporting phones from India to neighbouring countries and the Middle East as well.
Counterpoint predicts that in India, the EMS market is going to grow due to the increasing size of the smartphone market, with the help of major players like Vivo, Oppo, Samsung, etc, which are already manufacturing their own phones in the country. Special mention should be made of the spectacular demand new entrants like Xiaomi have created in a short time span.
Apart from smartphones, Indian EMS players have already started focusing on wearables, smart watches, smart bands and accessories for smartphones. Hence, the diversification into different segments has already started, according to techARC.
Gartner opines that the onset of this trend will drive investments in Make in India programmes, as a result of which vendors will be encouraged to use India as an alternative to China. Once product design also becomes mainstream in India, innovations tailored to the needs of Indian consumers can also be incorporated into phones. For instance, as the 3G-4G networks transition to 5G, it will encourage the production of IoT and smart products that can be used especially for the Indian landscape.
According to IDC, considering that India is an important market for any smartphone player and that the Indian government is also giving a lot of incentives to component manufacturers, the latter need to start thinking of India as a viable alternative to China for high-end manufacturing too. Considering the trade tensions between USA and China, manufacturers now have an alternate venue where they can set up a base and address the domestic market. A few years down the line, this can turn India into a manufacturing hub as well. Of course, this requires a lot more investments because India’s infrastructure and production-readiness is not on par with China’s right now.
Various reports and views of analysts confirm that India can be a viable manufacturing destination and could even become an export hub for making components and high-end electronic items. If this happens, India has the potential to boost its exports and start venturing into new markets like Africa and South East Asia. The larger picture looks bright for India. While the general global electronics market is seeing stagnation in innovation and consumption, the Indian market offers opportunities to design or redesign systems to tailor these to the local environment. Device makers and other market players have a good chance of growing their businesses by meeting these requirements.