Can 5G in India unlock demand amidst tough times for the smartphone market?

Two years of positive sentiment has spluttered to a halt. Perhaps sooner than anticipated. Consumers seem to be holding off from spending on new smartphones, something latest numbers reflect emphatically. It doesn’t make for pleasant reading globally, with the quarterly smartphone shipments at their lowest in two years. India isn’t an outlier for this trend either, with a decline in smartphone shipments in the same period. But is there hope for a rebound in the near future? In India’s context, can 5G rollout, something we are closer to than ever before, hold the key to unlocking new demand? Rationale for slowing smartphone sales globally London based tech startup Nothing has announced an increase in prices of its Android smartphone, Phone (1). It is now around ₹1,000 more expensive than before, for each variant. “Plenty has changed since we started building Phone (1), including economic factors such as fluctuating currency exchange rates and rising component costs. In response to the current climate, we’ve had to make a change to our prices,” says the company, in a statement shared with HT. Also Read:89% of Indians ready to switch to 5G technology: Report The slowdown, albeit possibly temporary, had to happen. There can only be as much appetite for buying new smartphones. The last quarter brought to the fore a variety of issues which have had an impact. There is a palpable fear of a global economic recession, fueled by geopolitical instability (Russian invasion of Ukraine as well as the events between Taiwan and China). The supply chain issues (semiconductor shortages have reduced, but not fully eliminated) and prolonged lockdowns in Chinese cities (zero-Covid policy implemented by the authorities) has impacted manufacturing. “What started out as a supply-constrained industry earlier this year has turned into a demand-constrained market. While supply improved as capacity and production was ramped up, roaring inflation and economic uncertainty has seriously dampened consumer spending and increased inventory across all regions,” says Nabila Popal, Research Director with IDC’s Worldwide Tracker team. Chinese phone brands are the worst hit There is consensus among data from research firms IDC and Canalys, that Chinese smartphone brands including Xiaomi, Vivo, and Oppo, have endured a negative trend in the year-on-year comparisons. Samsung and Apple have seen positive shipment numbers globally. “The global smartphone market is suffering a second period of falling shipments after a brief recovery in 2021, and the sudden drop in demand is hitting the leading vendors,” says Runar Bjørhovde, Research Analyst at Canalys. The global numbers from Canalys peg the Q2 2022 smartphone shipments at 287.4million, down from 315.6million in the same period in 2021. Samsung (6% growth) and Apple (8% growth) have remained positive, while Xiaomi (25% decline), Oppo (22% decline, while including OnePlus numbers) and Vivo (19% lesser) have been the worst hit. In India, Xiaomi has endured the biggest hit, despite manufacturing phones in India. India’s share of these shipments was 36.4million, which is 5% less year-on-year. Though Xiaomi continues to be the market leader, there has been a significant 26% negative return, which has allowed Samsung (23% growth) to close the gap. “5G smartphone supplies are much better than 4G, leading to higher ASPs but lower demand,” says Navkendar Singh, associate vice president, Devices Research, IDC India, South Asia & ANZ. Singh points out that mass segment of Android phones, generally referred to as ones priced below US$200 (less than ₹15,000) has also seen fewer new launches since the turn of the year. “Ballooning inflation hit consumers’ disposable income and vendors are struggling to cover their operating costs,” says Sanyam Chaurasia, analyst with Canalys. He points out the taxation questions, which have impacted Chinese phone brands specifically. “Top Chinese brands, such as Xiaomi, vivo and OPPO, struggled with government scrutiny as well as financial problems,” he says. It is important to point out that despite the troubles, businesses of these phone makers remained largely in place in India, with no dip in vendor numbers. Does 5G hold the key to unlock demand in India? The ball is finally rolling for 5G mobile networks in India, with expectation that the first networks will be commercially available sometime in the next few months. Research firm Cybermedia Research believes that 5G phones are already seeing a significant uptake. So much so that shipments of smartphones which are 5G-capable grew 7% quarter-on-quarter and as much as 163% year-on-year, in Q2 2022. “Shipments of 5G-capable smartphones have been growing robustly over the last few quarters,” says Menka Kumari, Analyst – Industry Intelligence Group, CyberMedia Research. Samsung is leading in the 5G smartphone space, with 28% market share while Vivo has a 15% market share, in a still distant second place. Many phones launched in India over the last couple of years have ticked off 5G as a standard spec, yet many haven’t, particularly at the more affordable price points. Some examples include Xiaomi’s popular Redmi Note 11 Pro phone (priced ₹18,999 onwards) and the Nokia C21 Plus ( ₹10,299 onwards). At this time, affordable 5G phones include the Samsung Galaxy M13 5G (priced around ₹13,999), Vivo T1 5G (costs around ₹15,990) and the OnePlus Nord CE 2 Lite 5G (around ₹19,999). Phone makers are treading cautiously still. “Our aim is to continue to maintain the current market position and cultivate 10million shipments to the Indian market this year by consolidating e-commerce partnerships and better technological breakthroughs,” says Madhav Sheth, CEO, Realme India. The company has launched the new Realme 9i 5G phone, which is priced just below the ₹15,000 price mark. There’s expectation that brands are lining up affordable Android phone launches in the coming months, which will include 5G as standard spec. “With the completion of 5G auctions, and anticipated roll-out of 5G services in India shortly, there will be further momentum in 5G smartphone shipments,” says CMR’s Kumari. But it wouldn’t be a blink-and-miss sort of an affair. In fact, 5G growth in the smartphone space will take time. According to data by research firm Nomura, only about 7% of India’s overall smartphone user base, is 5G ready. “Given the nascent 5G ecosystem and evolving use cases, we think 5G rollouts would likely be granular, starting with metros and larger cities,” says Nomura’s research note. The pricing of 5G services, and how much of a premium they’ll command, will also determine how quickly users switch to newer phones and faster mobile data. Mobile operators, including Airtel and Vi, have hinted at some degree of higher pricing for 5G services. “Historically, Indian telcos have refrained from charging a premium for 4G plans (vs 2G/3G data plans). With potentially higher speed on offer and likely initial uptake from premium customers, there is a potential for telcos to charge a premium for 5G,” the note adds. Outlook remains bleak but premium phones may push sales On the global spectrum, there is not much to cheer. There might be a temporary reprieve emerging from offers and discounts that could push sales, but the overall sentiment remains negative. “Geopolitical issues, a dip in consumer confidence and high inflation will continue to damage future market performance, despite upcoming new launches and festival sales in the second half of 2022,” says Canalys’ analyst Toby Zhu. There is the worry that consumer confidence is unlikely to emerge from the present dip, as high inflation will likely play a big role, which may hurt new launches and festival sales later this year. “There will be more of these monsoon season sales on Flipkart and Amazon, with significant discounts to stimulate demand and prepare for upcoming launches,” says Canalys’ Chaurasia. India will also feel the impact of the valuation of the Rupee, because a weakening currency and rising input material costs will make phones more expensive. Nothing’s price correction may just be the start. This will be particularly bad news for 5G phones that were expected to launch around the ₹10,000 price point (or even lower). Research firm CyberMedia Research (CMR) estimates India’s overall smartphone shipments for the year 2022 will be around 174million units. Premium phones, however, may continue to see robust sales. “With major smartphone brands lining-up their flagship launches in H2 2022, consumer demand in the premium smartphone segment will continue to remain robust with strong consumer appetite to switch and upgrade,” says Amit Sharma, analyst at Industry Intelligence Group (IIG), for CMR. That must be a ray of hope for Samsung, Apple, and OnePlus. Samsung announced new foldable phones this month, while Apple’s expected to announce the new iPhone 14 line-up in September. OnePlus now has a strong three-pronged flagship phone line-up, with the addition of the 10T.

ABOUT THE AUTHOR

Vishal Mathur is Technology Editor for Hindustan Times. When not making sense of technology, he often searches for an elusive analog space in a digital world.
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