Uptick in smartphone sales unlikely this year; 5G segment a silver lining, say market watchers

Sales of smartphones dipped in 2022, driven mainly by macroeconomic factors.  Analysts say the trend will continue in 2023, although the aggressive 5G rollout will push up sales of those devices.

YUTHIKA BHARGAVA, The Print, 9 March, 2023, New Delhi:  High inflation and an uncertain macroeconomic environment will keep the demand for smartphones low in the first half of 2023, although sales of 5G phones are like to pick up, experts say.

According to Gurugran-based marketing research firm CyberMedia Research, smartphone shipments declined 8 per cent year-on-year in 2022. US-based International Data Corporation, pegged this fall at 10 per cent with 144 million shipments — the lowest since 2019 — while the Hong Kong-based Counterpoint Research said smartphone shipments had declined 9 per cent year-on-year (YoY) to reach over 152 million units in 2022.

The year 2023 also began on a disappointing note for the industry with smartphone shipments in January seeing a decline of a whopping 21 per cent YoY, “reflecting a poor growth outlook for Q1 2023”, Prabhu Ram, head of Industry Intelligence Group (IIG) at CMR, told The Print.

The fall in 2022 came only a year after the Indian smartphone market witnessed strong consumer demand, making 2021 the best-performing year for the industry despite supply constraints and an increase in product prices. Experts say that soaring inflation and high unemployment rates had caused sales of smartphones to take a hit in 2022, although the demand for 5G phones is likely to drive up the sales yet again. 

Unemployment in India rose to 8.3 per cent in December 2022 — the highest in 16 months — according to data from the Centre for Monitoring Indian Economy (CMIE). 

According to a report by the UK-based consultancy Centre for Economics and Business Research, at 6.9 per cent, India’s annual inflation exceeded the target in 2022 and stayed above the Reserve Bank of India (RBI)’s tolerance band upper margin of 6 per cent. 

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Why smartphones sales were down in 2022 

According to Counterpoint, smartphone shipments in the country had grown 11 per cent year-on-year to reach 169 million units in 2021.

“Globally, post the pandemic, smartphone sales slowed down due to macroeconomic issues, which impacted consumer sentiment. In India, the trend was similar,” Shilpi Jain, a senior research analyst at Counterpoint Research, told ThePrint.

She explained that the years 2020 and 2021 saw the emergence of new device use cases such as online classes because of the COVID-19 pandemic, which spurred an increase in the demand for smartphones.

But as the pandemic started to ease in 2022, these use cases started to disappear. 

“So lack of use cases also impacted demand. Plus, beginning Q2 of 2022, inflation was at an all-time high, unemployment rates were high… this impacted the smartphone sales, particularly in the sub 10k segment,” she said.

Jain added that another trend that’s contributing to subdued demand is the slowdown in migration from feature phones to smartphones. “Before the pandemic, we were seeing about 5 million feature phones being upgraded to smartphones. Since the pandemic, this number has come down to 3-3.5 million every month,” she said.

According to CMR, supply constraints and challenging economic conditions contributed to a 55 per cent YoY decline in the affordable smartphone segment (that is, under Rs 7,000) and 8 per cent YoY decline in the value-for-money smartphone segment (between Rs 7000 and Rs 25,000). 

However, the premium smartphone segment (between Rs 25,000 and Rs  50,000) and the super-premium smartphone segment (between Rs  50,000 and Rs 1,00,000) saw shipments increasing by 12 per cent and 41 per cent YoY, according to the report.

Echoing similar views, Jain said the Sub-10k segment was hit the hardest, as people were holding back on purchases because of economic factors, preferring to either get the current handset repaired or go for a refurbished handset. 

In contrast, the premium segment (over Rs 30,000) contributed 11 per cent to India’s smartphone shipments and 35 per cent to the smartphone market revenue in 2022, — the highest ever, accordion to the CMR report.

“Driven by the supply chain constraints and uncertain consumer demand, we anticipate the market conditions to remain sluggish in early 2023. Smartphone original equipment manufacturers (OEMs) have been able to clear some of the long-stuck channel inventory. With the launch of some new 5G-capable smartphones, OEMs will look to reverse the prevailing market conditions,” Ram, quoted above, told ThePrint, adding that CMR anticipates the smartphone shipments for the entire year to grow in single digits in CY2023.

However, expect the first half of 2023 to continue to see negative growth because of inventory pileup and other macroeconomic uncertainties, Jain said, adding, however, that with unemployment rates and inflation getting better, demand should go up in the second half of the year. 

The festive season of 2023 — that is, the second half of the year — is expected to be better than in 2022 — largely driven by the demand for 5G devices. 

“So, there will be growth in the second half of the year. Overall, we expect marginal growth for the full year,” she said.

5G phones — the silver lining

The rollout of 5G services across the country is driving up sales for phones that will allow the service. 

“Consumers are going crazy for 5G devices in the above-Rs 15,000 segment,” Jain told ThePrint, adding that the demand was so high that the retailers, who are already dealing with above-normal inventory stocks, are finding it hard to clear their stock of 4G devices in the price range.

The high inventory levels, she said, were partly a result of OEMs pushing more inventory to the dealers in 2022 in anticipation that the strong demand trend of 2021 will continue. 

However, because of the subdued demand last year, retailers had about 9-10 weeks of inventory with them at the end of it, as opposed to the usual 4-6 weeks. 

In order to cater to the higher demand for 5G phones and to ensure that they come with an attractive price tag, manufacturers are trading in some features — such as fast charging or replacing OLED display with LCD/LED — in an attempt to bring them down to the below-Rs 20,000 category, Jain said.  

According to CyberMedia Research (CMR)’s India Mobile Handset Market Review Report for CY2022 released in January, the 5G smartphone shipment share increased to 31 per cent, with 5G shipments growing 74 per cent YoY in 2022. Around USD 20 billion value of 5G Smartphones were shipped in 2022, it said.  

“The silver lining continues to be the growth in 5G smartphone shipments. It will be a big year for 5G in India. As we move forward, we anticipate smartphone OEMs to bring more affordable 5G smartphones into the market. All of this bodes well and complements the aggressive 5G network deployment by Indian telcos,”  Shipra Sinha, an analyst at the Industry Intelligence Group (IIG) of CMR, said in the report.

According to the IDC, 50 million 5G smartphones were shipped during the year with an average selling price of USD 395 in 2022, down from USD 431 in 2021. With more affordable 5G launches expected in 2023, 5G devices should account for around 60 per cent of shipments in 2023, it said.

(Edited by Uttara Ramaswamy)