Smart­phone Growth Sig­nals Turn Weak

Mar­ket re­search firms say sales to grow at the slow­est pace this year, but will pick up mo­men­tum in the sec­ond half of 2018 Prof­itabil­ity Con­cerns for Smart­phones

The Economic Times - - Brands: Creating Desire - Gul­veen.Au­lakh@ times­group.com

New Delhi: Smart­phone ship­ments in In­dia this year are set to grow at the slow­est pace so far due to the af­ter-ef­fects of de­mon­eti­sa­tion, am­bi­gu­ity dur­ing the tran­si­tion to the goods and ser­vices tax (GST) and the up­com­ing launch of Re­liance In­dus­tries’ 4G fea­ture phone, ac­cord­ing to three mar­ket re­search firms.

Sin­ga­pore-based Canalys slashed its smart­phone growth es­ti­mate for In­dia by more than half to about 4-5% from its assess­ment in Jan­uary. Hong Kong’s Coun­ter­point Tech­nol­ogy Mar­ket Re­search re­duced it to 11% from 15% ear­lier and Cy­berMe­dia Re­search low­ered it to 5-6% from 10%.

The es­ti­mates take into ac­count an ex­pected jump in ship­ments in the run-up to Di­wali in Oc­to­ber. JP Mor­gan ex­pects to see 25-30% se­quen­tial growth in smart­phone units, 7% on-year, in the July-Septem­ber quar­ter in prepa­ra­tion of the festive sea­son which be­gins ear­lier than usual this year.

An­a­lysts ex­pect over­all smart­phone growth to re­vive only by the sec­ond half of 2018.

Re­liance will of­fer a new cat­e­gory of 4G fea­ture phones in Septem­ber at .₹ 1,500 each, re­fund­able af­ter three years, and .₹ 153 a month. An­a­lysts said this may push users of ba­sic phones, which start at about .₹ 700, to JioPhones, lured by con­tent such as movies and mu­sic and de­lay­ing an up­grade to smart­phones, which start at about .₹ 2,500.

“First half of the year has been slower than ex­pected due to GST and de­mon­eti­sa­tion. Growth should pick up in the sec­ond half but if JioPhone has some im­pact, then it will fur­ther slow down the tran­si­tion to smart­phones,” said Rushabh Doshi, an an­a­lyst at Canalys. The re­search firm pro­jected In­dia’s smart­phone ship­ments at 117-118 mil­lion for this year com­pared with 123 mil­lion es­ti­mated in Jan­uary.

“Tak­ing into ac­count JioPhone, this year will be slow­est for smart­phone growth ever in terms of year-on-year growth,” Doshi said, not­ing that the fastest growth was in 2013, when ship­ments more than dou­bled. The re­search firm said a week ago that the In­dian smart­phone mar­ket con­tracted for the first time in the April-June quar­ter as ship­ments fell 4% on-year to about 27 mil­lion ow­ing to con­fu­sion in an­tic­i­pa­tion of the GST regime, which started on July 1, bring­ing in all in­di­rect taxes un­der one um­brella.

Ahead of the in­tro­duc­tion of GST, re­tail­ers and distrib­u­tors had stopped stock­ing in­ven­tory in June, while some brands low­ered pro­duc­tion to mit­i­gate risks of over-stock­ing and un­der­selling.

“GST will have a bear­ing and we’re ex­pect­ing JioPhone will have some im­pact,” said Faisal Ka­woosa, a se­nior an­a­lyst at Cy­berMe­dia Rese- arch. The re­search firm is low­er­ing its ini­tial pro­jected ship­ments of 125 mil­lion smart­phones in 2017.

Ka­woosa backed Doshi’s view that smart­phone growth this year would be the slow­est.

Coun­ter­point Re­search scaled down its ship­ment ex­pec­ta­tions from 135 mil­lion. In­ter­na­tional Data Cor­po­ra­tion In­dia said it will re­tain its pro­jec­tion, which was al­ready con­ser­va­tive. “We have al­ways main­tained our growth out­look for 2017 to be around mid-sin­gle dig­its on top of 109 mil­lion phones in 2016,” said Navk­endar Singh, a se­nior an­a­lyst at IDC In­dia. He said JioPhone may have a lim­ited ef­fect be­cause both the de­vice and ac­cess pric­ing are high for an av­er­age fea­ture phone buyer. Singh said the smart­phone mar­ket’s growth will con­tinue to be slow for a few more quar­ters and ex­pects the high growth to re­turn by the sec­ond half of 2018, a view backed by most an­a­lysts.

“We can ex­pect things to change in sec­ond half of 2018 be­cause about 150 mil­lion 2G or 3G phone users will move to 4G,” Coun­ter­point's Tarun Pathak said.

Some com­pa­nies at­tribute the slow­down to the base ef­fect in a coun­try that is al­ready No. 2 in smart­phones, be­hind China. “We’re al­ready see­ing a slow­down from a per­cent­age point of view, but from an ab­so­lute num­ber, it’s pretty good still,” said Sud­hin Mathur, manag­ing direc­tor for Mo­torola Mo­bil­ity In­dia.

Some com­pa­nies at­tribute the slow­down to the base ef­fect in a coun­try that is al­ready Num­ber 2 in smart­phones, be­hind China

In Jan­uary, Canalys ex­pected growth to be around for the year, at 123 mil­lion units Hong Kong’s Coun­ter­point Tech­nol­ogy Mar­ket Re­search re­duced pro­jec­tion to from ear­lier on the back of 135 mil­lion units Cy­berMe­dia Re­search low­ered its ex­pec­ta­tion from In­dia smart­phone mar­ket to

growth from in the first quar­ter this year

Cy­berMe­dia re­vis­ing it’s ex­pec­ta­tion of

unit ship­ments for 2017

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