Smartphone industry to witness tepid 2023 as buyers stay away

Smartphone brands in India are in for a tough year in 2023, amid a drop in consumer demand led by the global inflation. Earlier this month, analysts reported a second year of drop in overall shipment numbers for the industry. Mint spoke to experts who said that the downturn could extend further, to the extent that 2023 could either remain flat or show low single-digit growth at best.

According to Counterpoint Research’s 2022 report, published on January 27, smartphone shipments to India fell 9% year-on-year in 2022 to 152 million shipments. In 2021, the country registered 169 million shipments. While a Counterpoint analyst predicted a flat 2023, an analyst from the International Data Corporation (IDC) predicted single-digit growth at best.

For instance, Prachir Singh, senior research analyst at Counterpoint, said that the increasing life cycle of smartphones was “an expected factor in the market.” Which means that users are holding onto their devices for longer than usual. India users used to have a six-month refresh cycle till 2020, but this has increased to nearly 24 months right now.

To be sure, 2021 was the last year of growth, as the effects of the covid-19 pandemic saw users continue to buy smartphones for remote work and education. While supply constraints due to covid-19-related factory shutdowns in China saw brands struggle to match consumer demand during that year, the Indian smartphone market still grew by 11% YoY.

Smartphone shipments have been on the decline since the quarter ended December, 2021. Data sourced from Counterpoint by Mint showed that the 2022 December quarter (Q3FY23) saw a 30% YoY drop in smartphone shipments, as consumer demand for smartphones slumped heavily post the festive season. Smartphone retailers across India also stated that footfall in stores remains low.

“Going forward, what will happen is that brands will start focusing on increasing revenue, or value, from India’s smartphone market — which has seen the average selling price (ASP) of smartphones go up steadily through 2022, and the same will happen in 2023 as well,” Navkendar Singh, associate vice-president at IDC, told Mint.

Further, industry stakeholders added that factors such as increasing usage cycles, conservative discretionary consumer spending due to inflationary caution, and a lack of compelling options, and ample supply of 5G smartphones priced below ₹20,000, could all add up to a second consecutive weak year for the Indian smartphone market.

According to Counterpoint’s Singh, the average selling price (ASP) of a smartphone grew nearly 17% YoY — up to nearly $250 (around ₹20,000) at the end of 2022, from $225 (around ₹17,000) at the end of 2021. He added that 2023 is likely to see a further single-digit growth in smartphone ASPs, even as shipments remain flat through the year. 

“There is a large state government deal that will augment shipments of smartphones this year, but this deal will cut down on the ASPs since they will mostly be focused on entry-level phones,” he said.

In June 2022, the Rajasthan government floated a tender for a ₹12,000 crore project for sourcing smartphones under the Rajasthan Chief Minister Digital Seva Yojana. The government will procure 13.5 million devices to be given to women in the state. Multiple OEMs and telecom operators have reportedly submitted bids for the tender.

“Overall, taking this deal out of the consumer market should see shipments seeing marginal growth thanks to the rise in demand for 5G phones especially in the second half of the year, while ASPs will rise more thanks to a host of affordability offers in the market — such as no-cost installments, buy-now-pay-later (BNPL) deals and more,” he added.

Others, however, expect the market to decline. IDC’s Navkendar Singh said “consumer smartphone shipments will decline in low single-digit through 2023”, and added that the drop in consumer demand is likely to continue despite brands being expected to launch more affordable 5G phones, going forward. 

The drop is tipped to be fuelled by brands struggling to sell 4G devices above ₹10,000 in India at the moment, while shipments of affordable 5G phones remain low — forcing users to either use their phones for longer, or consider the refurbished and used electronics market instead of opting to buy a new smartphone.

Manish Khatri, partner at Mumbai-based electronics retailer Mahesh Telecom, concurred. He added that consumer demand through the end of 2022, especially post October’s festive season sales period, has remained “very low”.

“The industry presently does not expect to see consumer demand recovering, unless the market sees an influx of affordable 5G phones. While the overall device supplies are more or less normal, shipments of affordable 5G smartphones such as Samsung Galaxy M13 (launched in July last year at ₹13,999) and the Vivo T1 (launched in May last year at ₹15,990) are slim right now — thus preventing high buyer interest. Unless more such devices come to the market in ample supply, 2023 is unlikely to see a rise in buyer interest,” he added.