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Dialling Growth: Key developments in the handset space

February 19, 2019
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The year 2018 was a significant one for the Indian mobile handset industry. The country surpassed the US to become the second largest mobile phone market, next only to China. Smartphone uptake saw major growth owing to increased affordability and lower data tariffs. There was a proliferation of smartphones with new designs, features and functionalities at competitive prices. In terms of market composition, Chinese players took the Indian market by storm. While the government hiked import duties on phones as a protectionist measure, its impact on the growth of the local handset market was not noteworthy.

A look at the key trends in the handset space during 2018…

Smartphone growth

According to Counterpoint Research, the smartphone segment accounted for about half of the total handset market during July-September 2018. The growing demand for smartphones can be primarily attributed to their increased cost competitiveness as well as declining data tariffs. Smartphone prices have been seeing a downward trend in the past few years. Interestingly, while prices have gone down, new features and  functionalities have been added, making these phones more attractive. Further, the large-scale deployment of 4G long term evolution (LTE) networks by almost all operators has given an impetus to the demand for 4G-enabled phones.

According to Counterpoint Research, the top five players held around 77 per cent share of the total smartphone market during the July-September 2018 quarter, with Xiaomi leading the pack. Samsung occupied the second position, with a decline in its market share between July-September 2017 and the corresponding quarter of 2018. Besides Xiaomi, other Chinese brands such as Oppo, Vivo and OnePlus gained ground in the Indian market. OnePlus, in fact, emerged as the leading premium smartphone original equipment manufacturer, with almost 40 per cent market share (during April-June 2018).

Among Indian handset players, Micromax was the only one to mark its presence in the top five performers, with its share increasing  to 9 per cent in the July-September 2018 quarter  from 5 per cent in the corresponding quarter of 2017.

Progress in manufacturing

According to the Indian Cellular Association (ICA), the number of phone manufacturing factories stood at 268 during 2018. Moreover, between 2017 and 2018, the number of mobile handset makers increased from 59 to 127, mobile phone battery units went up from 20 to 65 and mobile phone charger units rose from 27 to 130. That said, manufacturing continues to be primarily limited to the assembly of mostly imported components. To encourage domestic mobile phone production, the Fast Track Task Force (FTTF), a body under the Ministry of Electronics and Information Technology, has set a target of around 500 million devices by 2019, with an estimated value of about $46 billion. The FTTF also aims to export 120 million mobile phone units, with an estimated value of $1.5 million, by end 2019.

Spotlight on offline retail

While a number of smartphone players have charted their growth through online distribution channels, these still account for only one-third of the total smartphone sales. Companies such as Samsung, Oppo and Vivo have large offline retail budgets, and this has helped them grow their presence in the smallest of towns.

Acknowledging the big offline opportunity, Motorola and Xiaomi, which were once pure-play online companies, have been turning to offline retail as their next growth move. To this end, Motorola is tying up with retail chains to sell its offerings. It has entered into partnerships with Big C and Lot Mobiles, which together have 325 stores in Andhra Pradesh and Telangana. For Tamil Nadu and Karnataka, Motorola has tied up with Poorvika, which has a base of almost 250 stores. At present, Motorola’s Moto Hubs have a presence in eight states. As part of its retail expansion plan, the company aims to establish 1,000 Moto Hubs in 100 cities. Similarly, Xiaomi has been strengthening its offline presence by opening a chain of exclusive offline retail stores called “Mi Homes”. Currently, the company operates over 500 Mi Home stores across 14 states. It plans to take this number to 5,000 by end 2019. Apart from this, the company has partnered with offline retail majors such as Croma, Vijay Sales and Sangeetha.

Rise of smart feature phones

The Indian feature phone market, which had witnessed a setback due to the penetration of smartphones, seems to have reinvented itself in recent years with the launch of 4G-enabled smart feature phones. While affordability has definitely been a big factor in their growing uptake, the changing demographics/aspirations of people residing in the hinterland have also been fuelling the demand for feature phones. According to the International Data Corporation, the feature phone market has continued its upward trajectory with shipments of 44 million units during April-June 2018, recording a year-on-year growth of 29 per cent. The growth in the feature phone segment has been primarily driven by the launch of a range of 4G-enabled JioPhones by Reliance Jio Infocomm Limited. According to Counterpoint Research, Jio held a 47 per cent share in the feature phone market during April-July 2018, followed by Samsung and Nokia with 9 per cent and 8 per cent market respectively. Micromax, Lava and Intex have also been strengthening their offerings in this space.

Design revamp

A number of advancement are being made in smartphone design and function. Screen displays have become larger, even though the overall dimension of the devices has not increased. The effort to free up space to accommodate larger displays has led companies to eliminate the 3.5 mm headphone jack, the front-facing speaker and the fingerprint sensor.

In addition, there has been a significant change in the kind of batteries being used in smartphones. Lithium-ion batteries are gradually getting replaced with wireless charging technologies, which help in reducing the charging time thus obviating the need for plugging in the device. Companies such as OnePlus have reportedly introduced devices with charging capacity of up to 60 per cent within 30 minutes.

In terms of cameras as well, companies have moved from single rear cameras to front-facing cameras and have been experimenting with dual front cameras equipped with front flash and image processing features. Several firms have also started using artificial intelligence (AI) -integrated cameras for providing a better user experience by ensuring faster detection of subjects, automatic adjustments of settings and software processing of images.

Outlook 2019

According to Counterpoint Research, while the smartphone markets in China and the US are expected to remain stagnant or decline further, the Indian smartphone market is expected to be the only one that will grow in 2019. As has been seen in the past, the growth in the smartphone market will continue to be led by aggressive smartphone launches at various price points. Even though there will be considerable uptake in the sale of premium category smartphones, the collective growth of the market will be driven by affordable, entry-level smartphones.

In terms of sales channels, offline retail is expected to get a leg up with the coming in of new e-commerce rules that prohibit online marketplaces from engaging with smartphone players for deep discounting and exclusive launches. The new rules will come into effect on February 1, 2019. According to ratings agency CRISIL, the new norms will help increase the revenues of brick-and-mortar retail stores by Rs 100 billion-Rs 120 billion in fiscal 2020.

Lastly, the smart feature phone market will continue to see significant uptake in the coming year. Given that more than two-thirds of India’s population is rural, feature phones or smart feature phones are here to stay, and will create a multiplier effect on the digitalisation of the country.

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