India Smartphone and Tablet Outlook for 2014

2013 Year in Review

Smartphones

The smartphones sales in India grew ~105% (year-on-year) in 2013 to reach 41 to 43 million units. For the first time, monthly sales crossed 4 million units in Q4 and smartphones breached the USD 50 price in the same quarter. Although smartphones form less than 30% of total mobile devices volume sold in India in 2013, they contributed to over 75% of industry revenue.

Samsung remained the market leader in the smartphones segment in India all of 2013, in spite of losing 12% to 15% share from its peak (in mid-2012). In 2013, the Indian OEMs such as Micromax, Karbonn, Intex etc gained maximum ground in the smartphones space. These players benefitted from decreasing device prices and increased sales of smartphones in the lower ASP (Average Selling Price) segments. However, the local brands have struggled to garner significant market share in >USD 150 segment. In the >USD 150 segment, global brands such as Samsung, Nokia, Sony, HTC and Apple were the preferred choice of consumers. Nokia, leveraging its strong brand in India, increased its market share in Q4, 2013. A large part of Nokia’s growth in smartphones space in late 2013 can be attributed to the success of Lumia 520 model. 

In 2013, the distribution of smartphones breached the top 100 towns in India.

Tablets

As per our estimates, 3 to 3.5 million tablets have been sold in India in 2013. The adoption and growth of tablets has been slow in India. Various supply and demand characteristics such as reduced focus by OEMs, lack of enthusiasm among conventional distribution channel players, lack of understanding of the device value proposition by mass market consumers, etc are the key constraints inhibiting the rapid growth of tablets in India. Also, slower adoption of key enablers – 3G & WiFi – is restricting the rapid proliferation of tablets in India.

In 2013, online marketplaces have emerged as preferred retail distribution channels for tablet OEMs.

Outlook for 2014

Smartphones

In 2014, Convergence Catalyst estimates the smartphone sales reach 60 million, forming close 35% to 40% of total mobile handset sales in the country. We expect the growth rate of smartphones to slow down in 2014 as compared to previous years owing to slower decline of smartphone prices and also large base of devices sold in 2013.

Samsung is expected to maintain its leadership position in the smartphones space in India in 2014. However, the gap between the leader and challengers is expected to narrow down significantly in 2014. Samsung is expected to face stringent competition by various players across the portfolio. Nokia is expected continue the momentum built in late 2013 into the first half of 2014. The launch of Android-based devices (Nokia X, X+ & XL) will ensure increased sales for the company. Nokia’s increased market share is expected to come primarily at the cost of domestic brands as opposed to global brands. However, sustenance and/or growth of that momentum beyond the first half of 2014 depends on the strong product roadmap (which is not currently evident) and dynamics within the company – the way it operates – post integration with Microsoft.

The pro-Indian businesses rational among the think tank of a certain leading political party (which is expected to win the upcoming parliamentary elections) can be beneficial to domestic smartphone players. Companies such as Micromax and Spice are well positioned to potentially leverage the changing political climate in the country.

Other Smartphone trends for 2014 in India

• Slowing Decline of Entry-Level Smartphone Prices – Prices of smartphones have been decreasing rapidly in the recent years, with the entry-level smartphones currently being available for as low as USD 50. This rate of smartphone price decline is expected to slow down in 2014, and we expect the entry-level smartphone prices to settle at USD 38 to USD 40. Chipset, display, memory and battery are the key components that contribute to the smartphone cost/BoM (Bill of Materials). And, while there is room for chipset prices to decline, we believe the current prices of display, memory and battery are close to the bottom and will cease to reduce further, thus impacting the rate of decline of smartphone prices. This is a key factor for slowing down of smartphone growth rate in India, starting 2014.

• E-Commerce Companies to Play a Key Role in Smartphone Ecosystem – Trends such as Flipkart’s exclusive partnership with Motorola for selling Moto G and Snapdeal’s exclusive partnership with Intex for selling Aqua Octa are expected to intensify in 2014. E-Commerce players have emerged as strong distribution channel for smart devices, especially smartphones, in India. Their no-frills operations, lean supply chain, direct access to consumers and growing brands (of some of the leading players) make them the preferred partners for many smartphone OEMs.

We also expect some of the leading E-Commerce players to launch their own brand of smartphones (through white-labeling/ODM strategy), leveraging their direct consumer connect and strong brands.

Tablets

In 2014, we expect the sales of tablets to grow moderately to reach 5 million units. The lack of focus by key OEMs and retail distribution channel, slow growth of wireless data networks, lack of consumer interest and proliferation of other device options (such as phablets/large-screen smartphones) are some of the key barriers that will continue to hinder the rapid adoption of tablets in 2014.

Among various industry verticals, Education is expected to lead the adoption of tablets, followed by Retail as a distant second (in terms of units sales). In 2014, we expect the adoption of tablets in Education vertical to reach 225K to 250K devices. The players who sell tablets to retail consumers and industry verticals are different as the requirements in terms of solutions and go-to-market strategies are different to address these two market opportunities. And, no player has managed to successfully cater to both the markets yet.

Convergence Catalyst expects tablets to hit an inflection point in late 2015/early 2016 in India.