India’s Smartphone Conundrum

For some years now, India has been at the forefront of smartphone purchases and production, with Apple and Samsung moving its contract manufacturing units over. However, a growing used-phone market could soon cause a shift in this equilibrium as already many of the Android-led device makers are reporting a decline in offtake of new devices. 

Pour over any of the scores of gadget websites and check for new smartphone launches. The pace at which these are hitting the market has dwindled, especially so over the past three to four months. In fact, one could safely say that post the 2022 festive season, new handsets haven’t really caught our collective fancies – barring a few flagships that is. 

Smartphone production down 20% in Q1 2023

A report published in the ET says smartphone makers have cut production capacities by one-fifth during 2023 and the cause is obvious – the continued decline in sales since October last year. Shipments fell by 30% in Q4 of 2022 and 18% in Q1 of 2023, according to data provided by CounterPoint research. 

And the reasons are rather obvious. The macroeconomic headwinds suggesting recession is making buyers postpone spends that aren’t essential. Given that job losses and wage cuts matter more in the lower segment is also quite clear as the highest production cuts have come in the entry and mid-tier segments of handsets. 

CounterPoint research says the premium segment continues to be resilient, which is possibly why Apple CEO Tim Cook wasn’t too concerned about the timing of his company’s first two India stores – one each in Mumbai and Delhi – just a week ago. Apple hasn’t yet reported any dip in year-on-year numbers thus far, so we may have to wait and see how this pans out. 

Unsold inventories could last ten weeks

Most brands have also noted that they’ve at least ten weeks of unsold inventories, which means the production cut would continue into the April-June quarter as well. In other words, the possibility of normalcy could have to wait till the festive season kicks off some time in August and then continues all the way till October-November. 

What’s interesting is that industry insiders aren’t quite concerned about the production cut, which they say came calling twice in the recent past. They’re more worried about the parallel trend of India leading the global market in the refurbished handset business. Why so? Because the trend could put paid to the high-end handset market too. 

A bigger challenge from refurbished handsets

A report published in ET says the refurbished handset market saw India growing 19% in 2022, with Apple capturing nearly half this market at 49% and Samsung taking second place with 26%. CounterPoint research says the trend is growing due to the 5G rollout in secondary markets, accounting for as much as 13% of refurbished device sales. 

The report noted that demand for refurbished devices was growing across the world with the global secondary smartphone market registering a 5% growth in 2022. In fact, the analyst who worked on the report says business potential in this area was only curtailed by limited supply across markets in Latin America, Southeast Asia and Africa. 

This was a result of imports from mature markets falling in the recession-hit economies of US, Europe and Japan as people once again were putting off spending on non-essentials. The report also noted that China’s refurbished handset sales fell by 17% during the period, which could be good news for big brands as the Chinese preferred newer devices. 

Elsewhere, consumers were fine with paying lesser costs for some deficiencies in the product that wasn’t actually affecting their handset usage. And this trend was possibly acute in Apple’s handsets as they showed the highest and fastest growth in the secondary market. From Tim Cook’s point of view, this is good news as once consumers shift to an iPhone they seldom opt out and users of refurbished devices would be future prospects for acquiring new ones.