What Drives SmartPhones Demand ? Upgrade Cycle + Falling Prices

In 2009-10 when smartphones were still not popular in India, only about 10% of users bought feature phones above a retail price of Rs 8000. The market developments over the past year have been in line with expectations despite the regulatory noise and the retail price of entry level 3G smartphones has now fallen to around Rs 5,000 to Rs 6,000.

Upgrade cycle
Most consumers are willing to pay more when replacing their feature phones is one of the major reasons behind our bullish view on low-end smartphones. As long as consumers are willing to pay more when replacing their feature phones with smartphones, the value Total Addressable Market will expand. By comparing 2011 and 2010 handset demand data by price range, we can see the portion of low end feature / smartphone has increased at the expense of handsets priced below Rs 4000 due to consumer interests in smartphone and the portion of higher end handsets has also increased. Thanks to the popularity and trend setter – iPhone.

Bill of Materials [BOM Cost] of SmartPhones Falling
Despite mismanagement of the Economy and Indian Rupee, the retail price of a “good enough” 3G smartphone has fallen to USD100. The market development is faster than market expectations, with component costs falling faster than expected. The main chipsets (baseband, AP and connectivity), memory, display, touch panel costs have all fallen significantly over the past one year with the volume ramping up for smartphones. Total BOM cost of low-end smartphones with “minimum user experience requirement” has fallen to USD60-65 from USD85-95 in one year. EDGE smartphones can be sold at a still lower price than WCDMA smartphones is the cost savings in Qualcomm license and royalty fees.

Smartphone penetration rate for handset makers in 2012 looks reasonable. Globally, smartphone penetration has taken off much more quickly in China than in the US market, despite the US being the first market for smartphones to become popular and despite the US having a high portion of carrier subsidies. So can India compete with China ? We think not 🙁

Author: Webmaster