Global Smartphone Industry & The India Factor

Niranjan Gidwani Oct 19, 2023

The global smartphone market continues to decline in terms of sheer numbers.

This decline has been going on for the past few years and is due to several factors, the major ones being the global uncertain environment, inflationary trends, and longer refresh rates.

At the premium end, the market interestingly continues to hold ground, with Apple and Samsung holding the lion's share. Samsung's move into foldables has paid off, though the most recent launch of foldables has received a mixed response. And Apple continues to do well with its iPhone 15.

Xiaomi, Oppo and Vivo have been continuing to strengthen their position in key markets such as China and India. Huawei and Honor are making efforts to regain market share. OnePlus is an India favourite.

The Indian market holds specific relevance over the next few years. Until a few years ago, the Indian market was in excess of 300 million units of features and smartphones combined in a year. As per Counterpoint Research, the number of feature phone buyers in India in 2022 was about 60 million, and smartphone buyers were about 200 million. Almost 30-50 million of these smartphone devices purchased were refurbished phones.

Apparently, India's current installed base of mobile phones is around 800 million, out of which 200 million are still feature phones. In the Indian context, feature phones are likely to be around for some more time as the price at which a feature phone is available is still very low in comparison to the price of a decent smartphone. Another factor at play is that the average period of replacing a mobile has now become around 36 months in comparison to the earlier 18-24 months.

However, in the Indian context, the two most important beneficial factors on the horizon are - the rapid speed of digital transformation of the economy and the rollout of 5G. The speed increase on the 5G mobile devices has helped India surge ahead in the Ookla global speed rankings. According to the report by a UK-based organization, the five cheapest countries in terms of the average cost of 1 GB of mobile data are Israel ($0.04), Italy ($0.12), San Marino ($0.14), Fiji ($0.15), and India ($0.17) in the Worldwide Mobile Data Pricing 2022 list.

Electronics manufacturing services (EMS) have benefited from India’s US$24 billion production-linked incentives and global brands’ “China plus one” approach. If one wishes to set up an entire manufacturing ecosystem in Vietnam, one would have to depend on exports for 90% of their production because the local consumption market would be limited. This makes India, an emerging economy with the world’s largest population, a more appealing manufacturing destination.

The battle has just started. As of now, most electronic products in India are assembled more than manufactured. For instance, India is still dependent on imports of various components, and these components could account for over half the cost of the final product. Yet, an important and positive beginning has been made. If we were to talk only about mobile phones, India’s mobile phone opportunity would be approximately US$36 billion.

50 per cent of the cost of a smartphone is in its Semiconductors, which account for 27 per cent of the cost, followed by display assembly at 12 per cent and camera module at 11 per cent.

Therefore, anywhere in the world, EMS or contract manufacturer has two ways to build a moat: become a vertically integrated operation, which requires time, money, energy and a lot of patience. Or invest enough in its current business and keep scaling up to scare away the competition.

Definitely, as regards India is concerned, the US-China situation, the internal slowdown in China, the global brands' China-plus-one approach, and the large and potential Indian market are all creating attractive tailwinds. So far, the pilots are doing a good job. Yet, as the economy grows, as component-level manufacturing complexities grow, the same pilots will have to migrate to newer and bigger aircraft they will have to train to fly.

Indian pilots have proven their capabilities. Over time, they will fly bigger aircraft with equal ease. Duration will be dependent upon factors which could be tailwinds or headwinds, based on global weather.

No one should ignore the 30-50 million units a year of refurbished phones market in India. Currently, no seriously organised player has looked at this in detail. Great opportunity area for EMS to study this and offer refurbished mobiles exclusively through ONDC.