Semiconductor shortage triggers rise in smartphone prices

The budget smartphone category in India is currently flooded with multiple options for consumers. While some focus on one or two parameters, others aim at offering an all-round smartphone experience in a budget. In case you are looking to buy a smartphone under Rs 15,000 in India, here are some of our recommendations.

Smartphone prices have started rising because of the global shortage of chips and higher cost of components – a situation that is likely to continue for some time.

"We have witnessed an increase in the cost of the majority of the components used in smartphones such as display panels, back panels, battery packs, etc. over the past few months coupled with global chipset shortage. In addition to this, with the dollar appreciating, this has led to an inevitable increase in the prices of Redmi Note 10 despite our best efforts to absorb the increasing cost," said a Xiaomi India spokesperson.

The company however claimed it would ensure that the products remain accessible for the masses, and that it doesn't plan to make more than 5% profit on any product.

A mobile phone dealer told Moneycontrol that the price of Xiaomi Note 10 has increased by Rs 500 from Rs 14,000 in the last few weeks.

India is the world’s second-biggest cellphone manufacturer after China but it relies on imports for chips or semiconductors that power these devices.

The shortage of this crucial component is broadly caused due to a COVID-fuelled demand spike.

While demand is a huge factor supply is also an issue. Taiwan, the world’s biggest maker of semiconductors, accounting for more than 50 percent of global supplies, is feeling the pressure of rising demand.

Leading global chipmakers have warned that the shortage will extend into 2022, but demand is expected to rise with the onset of the 5G era.

According to technology market research firm Counterpoint Research, given the current situation, a 4-5 percent increase in the price of older models is inevitable.

"We could see a 4-5 percent increase in price for older models as there is a shortage of peripheral chipsets - display driver IC (DDIC), power management (PMIC) and so forth," said Neil Shah, vice president of Counterpoint. "Though for newer models, OEMs (original equipment manufacturers) have more flexibility with the bill of materials (BoM) costs to absorb the 3-5% increase across the product design and price it accordingly."

Saumsung did not respond to queries from Moneycontrol but in an annual shareholders meeting co-Chief Executive Officer Koh Dong-jin is reported to have acknowledged the issue of chip shortage. According to a March media report, the company was considering skipping the launch of a new Note device which happens to be one of its most selling series.

According to Varun Krishnan, Founder of tech blog Fonearena, consumer sentiments are not very favourable right now and the shortage of chips would also reduce supply. "It is going to impact the supply of smartphones now. We may see a smaller number of units shipped given the shortage of chips as well as lack of appetite in the market. The economy has taken a hit. The market may see a correction later this year but as of now the demand has significantly reduced compared to the last year in India," he said.

India recorded a shipment of over 38 million units in the first quarter of 2021, a 23% year on year growth according to Counterpoint's Market Monitor service. New product launches, promotions and financial schemes as well as pent-up demand from 2020 had led to this growth.

However according to the report, these numbers should be taken with caution as a second and more virulent wave of Covid19 is currently on in the country and is likely to impact the coming quarters.

"Given the grim scenario, the consumption of smartphones has reduced by almost half in the last few weeks. While manufacturers have started to acknowledge the dip in volumes as well as price hike following the chip shortage, at a retailer level the impact is being felt owing to multiple factors besides chip shortage. Firstly, multiple states in India have restricted online sale of mobile phones given that there is still a lack of clarity on what comes under essentials and what not. Secondly, multiple states are under lockdown and customers cannot venture out to buy phones," said L Subhash Chandra, managing director of South India's leading multi-brand retail chain.

"How much of this year is going to get affected, we don't know. It's May and we are hearing that the third wave is likely to come in October-November. We are at a standstill. So not just chip shortage but all these ancillary factors are going to make a dent in the consumption and lead to a price hike of the smartphones," he added.

Online marketplaces such as Amazon and Flipkart have become the new platforms for most of the new mobile phone launches. The two firms did not respond to Moneycontrol's queries on whether any of the scheduled launches have been deferred following the global shortage of chips.