Feature to smart

Margin hit

Bundling to grow

Winter is coming…The phrase holds perhaps more resonance for smartphone makers in India than characters of popular series Game of Thrones, as Samsung Karbonn and other players foresee a slowdown in smartphone sales.Industry insiders expect smartphone sales in the April-June quarter to remain flat or grow at a tepid pace from a year earlier, compared with a 20-22% expansion seen in the past year. And, this may continue for the better part of the year, they say, as conversions from feature, or basic, phones to smartphones have slowed, because of the affordability factor.Some experts say basic phone users are waiting also for more affordable 4G phones to hit the market before making a switch.One of the outcomes of this trend is, established players are refocusing on featurephones, especially in the semi-urban and rural India — segments of the market where there are potential for growth in handset sales as urban areas are more or less saturated. This also means lower average selling prices (ASP) and smaller margins.“I don’t know if we (industry) will go back to the times of 2014 when smartphones doubled or even 20% on-year growth that we saw in 2015,” said Subhajit Sen, chief marketing officer at homebred Micromax Informatics, the No 2 smartphone player in the Indian market after Samsung Electronics. “I don’t know whether that kind of growth opportunity remains.”Smartphone sales fell 8.2% sequentially in the January-March period, according to International Data Corporation (IDC) India. Cybermedia Research’s data showed a 7.4% sequential fall for the same period.While the sequential January-March drop isn’t unusual — it is blamed on inventory build-up during October-December to meet festival season demand — the ground realities are different this time around. For instance, first-quarter smartphones sales were up just 5% from a year earlier, as per IDC, markedly slower than what it used to be and a likely indication of the start of the downward slope.Conversion from featurephones to smartphones — with ramping up of data offerings, the industry hoped this to drive smartphone sales — is almost stagnant for the past four quarters.According to Counterpoint Research, the share of smartphones in the total handsets shipped into the country was at the same level in the quarter ended March 2016 as it was in the 2015 June quarter – 55%.This number, which was also similar to what IDC India showed, should have ideally increased on year and that of featurephones — 45% — decreased over the past quarters.Industry insiders say that monthly conversions of featurephones to smartphones have slowed to around 10% now, from 17-18% a few quarters ago. “Limited buying power of featurephone users and dearth of a quality basic smartphone in Rs 500-1,500 price range are the key inhibitors for a slower-than-expected migration from featurephone to smartphone,” said Navkendar Singh, senior research manager at IDC India.According to analysts, the demands of the featurephone buyer — like long battery life and loud volume — are very different from a smartphone user. There are limitations for the manufacturers to offer these specifications in a smartphone while also keeping prices low.“This is why many of the vendors are still engaging with users in lower tier cities and beyond through better quality featurephones … as the demand is not slowing down,” Singh added.The second-largest Indian handset maker, Intex Technologies, is a major case in point here. The Noida-based company shipped out 3 million featurephones in January-March 2015, and raised this number to 5.4 million in the October-December quarter of the year. For the just-ended March quarter, its featurephone shipments at 4.4 million units were nearly double of its smartphone numbers.“While the growth is certainly there, the transition to smartphones is perhaps slower than industry expectations, as both feature and smartphones continue to find takers,” said Sanjay Kumar Kalirona, head of mobile business at Intex Technologies.Gaurav Nigam, product head at Lava International, also pointed to strong demand for featurephones. “Our numbers showcase a definite increase in featurephone shipments in Q1 2016 as compared to the numbers of Q1 2015.”Micromax’s Sen said the average time a consumer uses featurephones has risen steadily to 490 days, from 470 days, which when put on a base of 30 million consumers overall, takes on far larger, and more worrying, proportions.This is one of the reasons why IDC recorded a sequential drop of 20% in smartphone shipments of Micromax, Intex and Lava put together in the January-March period, as they struggled to push their inventories into the market.Another major contributing factor to this delay in switching to smartphones is 4G, say sector experts. They said basic phone users are waiting for more affordable 4G phones to hit the market before they make the switch.Faisal Kawoosa, lead analyst at CMR, said the focus on featurephones is putting pressure on average handset selling prices, a critical parameter as companies chase higher revenue and margins.“If they intend to maintain ASP increase of 5.7% on-quarter and 25% on-year, as seen in 1Q’16, they are going to face difficulty in positioning themselves in higher price ranges where the competition is stiff, essentially from China brands,” said Faisal Kawoosa, lead analyst at CMR.An industry veteran said the smartphone market may remain flat this year unless prices of devices are lowered sharply. It’s widely expected that even 4G smartphones prices are expected to fall to below Rs3,000 by the end of the year.Mukesh Ambani-owned Reliance Jio Infocomm, which has already become the No 5 smartphone player by shipments with its Lyf brand of phones, can bring back the life in the smartphone segment with its offers to bundle voice and high-speed data, for the cost of the phone.Taking cue, executives at Intex have already begun talking to some telecom operators for bundling voice and data on some models. One of the people aware of the development said this would be in the interest of telcos too, as they want more people to use data. “If there’s free data, smartphone sales will rise again,” this person said.To be sure, the opportunity is still huge as the total installed base of devices at present is around 220 million in the country — up from 138 million in 2014 — and there are roughly a billion SIM card holders in India, including dual SIM holders.“The role of players such as Reliance Jio and Bharti Airtel will be important to drive smartphone adoption growth by leveraging an ecosystem-level approach,” said Tarun Pathak, senior analyst at Counterpoint Research.