Rising prices of smartphones, laptops unlikely to halt anytime soon

The shortage of components, especially chips, throughout 2021 has increased the prices of major consumer electronics, such as laptops and smartphones, by almost 10%. Industry analysts feel that the growing prices are unlikely to abate any time soon as the supply chain will take more time to recover from the last two years of disruption.

According to Navkendar Singh, research director at market research firm International Data Corporation (IDC), the prices have increased due to a shortage, supply cost hikes and also decisions taken by brands to bring in mid to premium products to India, especially in the PC segment. They focused on more expensive products due to the tight supply situation “as a margin play”, he said.

The average selling price (ASP) of laptops, which was around Rs 50,000 when the pandemic started around the first quarter of 2020, has increased to Rs 65,000 in 2021, he added.

Even though India shipped more PCs in 2021 as compared to the year before, PC brands have struggled to meet demand from SMBs and enterprises. According to IDC, despite focusing on a few segments, the demand-supply gap remained a challenge for most brands.

“In the smartphone segment, the ASP has increased by almost 10% as the components issue has impacted every brand,” said Tarun Pathak, research director at Counterpoint Research.

This is also reflected in the wide gap in growth seen in different price segments. For instance, the shipments of under Rs 10,000 segment which accounted for 30% of all smartphone shipments in the December quarter of 2021, dropped by 5% as compared to the year past, whereas shipment in the above Rs 20,000 and Rs 30,000 segments which together account for 23% of all shipments, grew by almost 100%.

This, too, indicates that brands are prioritising components for high-value products in the smartphone segment. 

According to Pathak, two-thirds of users always go for an incremental upgrade over their previous phones. People are upgrading to mid-segment smartphones.

“There was no supply in low-end devices. As a result, vendors were pushing models which are close to Rs. 20000. 5G chipsets were not in shortage, which is why whatever vendors were getting from the supply side, they used it,” said Sanyam Chaurasia, research analyst at Canalys. It is one of the reasons why 5G shipments increased by six times, even though the rollout of 5G services is not expected anytime soon. 

Chaurasia explains that component prices were at an all-time high in 2021. It has grown by 20% for most components and even higher in displays, particularly for AMOLED panels. Chipset prices have increased by 18 to 20%. As a result “the gross expenses for all the vendors have increased by close to 21% and this is all impacting the end consumer retail price,” he added.

Although the government of India has announced a Rs 76,000 crore incentive-based scheme to boost semiconductor manufacturing in India, and several players have expressed plans to take it up and set up units in India, it will take years before those units become operational. Intel, too, announced investments of $20 billion to set up fabs in the US, which will be up and running by 2025.

Credit rating firm Moody’s, said earlier this month that due to the increase in covid-19 cases, particularly of the Omicron variant, the ongoing global chip shortage is expected to continue in 2022, even if it doesn’t worsen. A January report by the US Department of Commerce showed that in semiconductor products the median inventory for consumers has fallen from 40 days in 2019 to less than 5 days in 2021. 

IDC’s Singh said the scenario won’t change much in 2022. Either it will remain the same or we may even see some hike in prices. Canalys’ Chaurasia concurred.