The big question - Will the Chinese occupy only 50% of it?
2020 has been like a roller coaster ride for the smartphone industry in India. Forecasts of an expected growth in double digits in Q1 of 2020 – to a very pessimistic outlook of a double digit degrowth in Q2 – to a record Q3 with 50+ million shipments – and, then to a what now looks like a equally great Q4 at 50 million approx. Going by the data reported, October shipments have been at an all-time high at 21 million and we can expect the total for 2020 at approximately 150 million, close to the volumes last year.
H2 has indeed shown a strong recovery – be it due to increased use of smartphones for work, entertainment, learning or revenge buying as some people say, with an expected shipment of 100+ million devices. Against a normal ratio of 45:55 for the last many years, the ratio of H1 and H2 at 67:33 in 2020 says it all.
The Indian smartphone market works very differently from the other big markets. I will try and put down my thoughts on it for 2021.
1. Keeping 2020 aside as an exception, India is the only market which is expected to grow in the coming years. Various research agencies are putting a figure of 10% growth in 2021. My take would be much higher with Jio’s targeted effort to convert #Airtel, #VI 2G customers to 4G with Airtel/VI also getting involved directly or indirectly into devices. Based on a survey conducted by me with the findings in my blog https://www.sharmaajay.com/post/2021-2g-users-to-define-the-smartphone-ruler, 44% of the respondents felt that at least 88 million 2G users would shift to 4G. If we go by what 90% of the respondents feel the figure is still a staggering 35 million. Combine the normal double digit growth with what 90% of the respondents feel and we are looking at a smartphone market size of 200 million approx. Wow!
In my survey findings shared in the same blog, I had mentioned that it may include the #Jio 4G Feature Phone which has now been confirmed through some reports.
2. The price specification ratio will continue to play an important role. Hardware specifications like RAM and number of cameras which are already at levels exceeding what are actually required may not see much change. Camera megapixels may see increases. It may be a little early for 2021, but removable cameras to accommodate high megapixels may be the next thing. We should see a whole lot of folding phones as the new accepted form factor. The contribution of 5G devices in the portfolio of the leading brands will also go up as India prepares for 5G. Sub Rs. 15k 5G devices – a possibility with the Jio-Google alliance could really give the category a huge push. If you are selling a device above Rs. 15k, better to have it 5G enabled.
3. The severe competition will continue to play an important role in the fight of brands to get a bigger pie in the world’s only top 3 markets which means prices will go up only if the material cost or taxes go up. The pressure on margins will remain and profitability will continue to be a challenge which implies that the present top 5 brands will continue pushing more to the online channel with lesser stock allocations and margins to the mainline channel.
The mainline channel will find it a challenge to make money on the major brands be it distributors or retailers. For the distributors of major brands operating at low margins, viability rests on high volumes. If volumes take a hit with increased competition, they will be impacted. Brands may also want to increase their distribution base to increase penetration and this could also impact the business volumes of these large distributors. Expect some big ones to realign their brand or product portfolios.
4. The high contribution of the present top 5 brands at 87% would go down with the rise the Indian brands, and global brands like #Nokia, #LG, and #Apple. Apple recorded its best ever Q2 in India. At the same time, the share of the Chinese brands at 75% as per Canalys should go down with the #Samsung, Jio and the Indian brands being the major gainers. Will it go down to 50%, is a question.
Expect Jio to be in the top 5 in 2021. #Xiaomi and Samsung will continue to fight it out for the No.1 slot with #Vivo, #Realme and Jio fighting for the balance 3 positions.
5. Online share which should be close to 50% in 2020 may actually see a degrowth in % terms considering that the expected high number of 2G customers converting to 4G will be primarily mainline customers. Brands will aggressively drive more business through their own online channel along with #Amazon and #Flipkart. Mainline getting together to float their own online platform is a possibility.
6. The organised retail or the large format stores (LFRs) will grow to gain more strength in dealing with brands and to offer a more professional buying experience to the customers. We have already been seeing their presence increase from south initially now to Gujarat and parts of Maharashtra.
7. Supply chain may be an issue and brands like Apple and Samsung may hold an advantage here.
8. Q1 should be the first full quarter available to the Indian brands with some warm up sales in Q4 2019. Their narrative has been built on anti-china sentiments, but this has not reflected in the way the Chinese brands have sold in Q3 and Q4. The Indian brands will not find it easy as the sentiments ebb further with time. One should keep in mind that it is a first a battle between Indian MILK brands and Chinese brands not Micromax or Lava or Karbonn against Xiaomi, Vivo, Oppo or Realme. The success of one Indian brand will complement the other Indian brand and vice versa. While the Indian brands have shown the capability to try and match the Chinese on the price/spec ratio, they have to match them on the R&D, product quality and service as well to be a part of the race.
9. One should see a growth across all price segments including the sub Rs. 5k segment because of Jio, Rs. 5-10k because of Jio and the Indian brands, Rs. 10-15k with the possible entry of low-end 5G devices. Rs. 15-25k price segment again because of more launches of 5G phones and Rs. 25k-50k due to an aggressive Apple, Samsung and #OnePlus. Xiaomi, Realme and Vivo will also strive to make their presence felt in this segment.
10. The channel conflict between online and mainline will remain with brands pushing more to online during the festive season leveraging their discounts and offers to sell more. Mainline will resist as they have been doing till now. Brands will promise uniformity by the time the festival season is over and what has been going on for years will continue. Mainline specially Brick and Mortar stores have to find ways to stop this happening to halt their decline. O2O models like #Gabbardeals, #O-Line-O could be some options.
11. Operators tying up with existing smartphones brands, clubbing existing smartphone brands with offers and financing options, launching their own branded or co-branded smartphones will be a new phenomenon.