Will smartphone sales rebound from the ’22 dip?

Why are smartphone sales not growing?

2022 began with supply chain issues. There were component shortages, including that of semiconductor chips, whose prices rose. This, in turn, led to an increase in the prices of smartphones by about 15%. Prices could further rise about 30% due to steep inflation. The price increase led to waning demand, especially in the entry and mid-level price bands. The premium market, however, grew. According to a senior telecom industry executive, the replacement cycle for smartphones has increased to nearly 30 months now versus 18 months till last year.

What’s the shipment outlook for 2023?

Analysts expect 2023 to be better than 2022 with 175 million units expected to be shipped. A number of factors can contribute to this uptrend. One, the inflationary macro environment is likely to improve, which may lead to the softening of input costs and, in turn, stabilize retail prices for smartphones. Retail inflation has started to come down, which could permit consumers to spend more on devices. Two, feature phone users are expected to migrate to smartphones. Three, with 5G networks now being available, many consumers will replace their 4G smartphones in 2023 as well as in the years that follow.

What could scuttle shipments again?

India has a high installed base of more than 600 million smartphone users. So, replacement cycles will help broaden the market size in the coming years. Despite the dip in 2022, the market has been resilient and performed better than many other regions. The biggest worry is the covid surge in China and the scale of its impact on electronics supply chains.

Will Indian assemblers be impacted?

Manufacturers are cautious. If supply chains do get hit, input costs will rise again, raising the cost of production. This will get passed on to consumers in the form of higher prices, resulting in a repeat of 2022. Assemblers in India could also see their production getting impacted, which can deter them from meeting their production-linked incentive (PLI) targets. In any case, because of decreasing domestic demand, Indian manufacturers will face challenges to meet PLI-related targets.

Will our manufacturing story remain intact?

Experts believe that India’s manufacturing story will continue to grow, as it presents itself as an attractive destination amid the current geopolitical scenario. More and more smartphone makers, electronics companies, and automobile manufacturers, which had thus far heavily relied on China, are looking to diversify their supply chains. Many of these companies are already evaluating India as an alternative production destination. The PLI schemes have been opened up for other category of products.