Smartphone sales likely to remain subdued in festive season despite 5G push, Cricket World Cup

Smartphone sales are expected to grow from 34 million in 2022 festive period to 37 million this year

Smartphone sales in the upcoming festive season are expected to remain flat or grow in single digits compared to the previous year, despite affordable 5G models being launched and a push from pre-Cricket World Cup purchases by users, according to industry analysts. Online marketplaces, who are losing market share due to a revival of brick and mortar retailers, are likely to hurt more.

“I think what we are estimating is a single-digit 7-8 percent year-on-year growth in terms of volume of shipments but value-wise it will be a double-digit growth, almost 12 percent or 13 percent because we are estimating Indians are going to buy more premium phones this year,” said Tarun Pathak, director at market research firm Counterpoint.

“The financing is going to be the key to people buying. We are seeing very strong traction for iPhones, especially in segments like Rs 20,000 and above, but sub-Rs 10,000 is largely muted,” he added.

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While the volume of shipments in the festive period of last year was 34 million, the number is expected to crawl up to only 37 million this year as consumer discretionary spends aren’t rising and smartphone prices are going up due to higher component prices.

Muted growth in the festive period will also mean that overall smartphone shipments during the year will either remain flat or may even decline. In the first half of the year, shipments are estimated to have fallen 10 percent to 64 million units, compared to the same period of 2022.

“At the start of the year itself, the theme for 2023 was profitability and not pushing the sales numbers. The fluctuations in dollar values against the rupee haven’t been very helpful, and the rise in prices of components has been an added burden. For these reasons, it is a foregone conclusion that smartphone prices are going to rise. For the features that you would have got in a Rs 20,000 range last year, you might need to spend Rs 25,000 now,” said Upasana Joshi, principal analyst at market research firm IDC India.

In the second half of 2023, shipments are estimated to be around 80 million, which is a 7 percent rise compared to 75 million in the second half of 2022 — and a 12.5 percent decline compared to 90 million in the same period of 2021.

Meanwhile, the industry is looking at the upcoming Men's Cricket World Cup with a lot of expectations to drive festive sales. The thesis is that viewers are losing the attention span to sit in front of a television set for around 8 hours for a 50-over match. As such, the tournament might trigger a bump in smartphone sales this time, unlike earlier World Cups that had led to a spike in sales of television sets.

Generational shift

An important tailwind could be the launch of a lot of 5G models at affordable prices. At the time of the festive sales last year, there were hardly any 5G smartphones in the sub-Rs 15,000 range. Although 5G penetration is yet to happen across the breadth of the country, most users who bought a 4G handset in the last couple of years will want to upgrade to 5G when they purchase their next phone, say analysts.

“Around 45 percent of the shipments in the second quarter were 5G devices, and we expect it to go up to 50 percent by the end of the year. Anyway, all the models being launched in the over Rs 20,000 price segment are 5G. But now there are at least 10-15 models in the 5G category in the Rs 10,000-20,000 range,” said Sanyam Chaurasia, strategy analyst at market research firm Canalys.

“With the onset of the festive season, you can expect brands to initiate their 5G strategies. For example, Samsung typically launches new models and makes sure that all the channels are filled up in the first half of the year. As the festive season approaches in the second half, they ramp up their pricing and promotional strategies to drive growth. As such, a Rs 21,000 handset could cost Rs 15,000 in the festive period,” he added.

The return of brick-and-mortar stores

Meanwhile, offline sales are making a return in terms of market share after a couple of heady years for online purchases of smartphones that were driven by digital adoption during the pandemic.

In 2021, online purchases' share of the festive season was around 67 percent, which fell to about 62 percent in 2022 and is expected to further drop to 59 percent during the upcoming festive season, said Pathak of Counterpoint.

Also, people who are buying more affordable phones like to offset some of the pricing by trading their older phones — and offline retailers are giving better deals in this respect. Brick-and-mortar sellers are also coming up with innovative bundling schemes wherein consumers can purchase another gadget like a wristwatch or speakers along with a smartphone for a significant discount.

This is happening with the average selling price of phones going up. Earlier, there were not enough margins for offline retailers for this pricing dynamics, but now that’s changing as the Indian smartphone market is moving towards premiumisation.

One major factor in the decline of online share of purchases has been the regulatory tangles that Chinese players like Xiaomi, Vivo and Oppo got enmeshed in.

“Around 70 percent of the Xiaomi and Realme portfolios were in the online segment. Both e-tailers and the brands have been investing a lot in the segment. When the major players see their online sales drop, you cannot expect another new player to fill in the void quickly,” said Joshi of IDC India.