Frost & Sullivan India Mobile Handset & Smartphone Market


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Frost & Sullivan India Mobile Handset & Smartphone Market

  1. 1. The Next Growth Engine of the Dynamic Mobile Ecosystem:Robust Growth in Smartphones and Feature Rich Mobile Handsets, Opportunities Abound! Thejaswi Parameshwaran Information & Communication Technologies 20, May, 2011 Frost & Sullivan’s Growth Consulting can assist with your growth strategies
  2. 2. Today’s PresentersThejaswi Parameshwaran, Industry AnalystFrost & Sullivan 2
  3. 3. Focus PointsAgenda Product Segmentation Mobile Handset Ecosystem Overview Mobile Handset Market Outlook: India Drivers & Restraints: Overall Mobile Handset Market (Feature Phones & Smartphones) Top Trends in the Mobile Handset Market Emergence of Indian manufacturers Decreasing price points and channel margins Strategic shift towards Smartphones for earning higher margins Smartphone Ecosystem Overview Smartphones Market Outlook: India Drivers & Restraints: Smartphones Market Top Trends in the Smartphones Market Operating system perception mapping Distribution model analysis Bargaining power impact mapping Conclusion & Key Take Aways 3
  4. 4. Product Segmentation Mobile Handset Market: Product Segmentation (India), FY 2010 Mobiles 1. Ultra Low-cost Mobile 2. Low- to Medium-cost 3. High-cost Mobile 4. Smartphones Handsets (ULCMHs) Mobile Handsets Handsets (HCMH) (LCMHs)• Price range: • Price range: • Price range: • Price range:• Less than Rs. 1,500 • Rs. 1,500 to Rs. 2,500 • Rs. 2,500 to Rs. 4,000 • Greater than Rs. 4,000• Key features include • Key features include • Key features include • Key features include B&W screen, messaging, colored screen, FM radio, GPRS, extendible application installation, and phone book and VGA camera memory, MP3 player, and QWERTY keypad/touch digital camera screen, dual SIM, Wi-Fi, and 3G •Source: Frost & Sullivan 4
  5. 5. Distribution Channels Key Ecosystem Participant for the Mobile Handset Market Mobile Handset Market: Mobile Handset Ecosystem (India), FY 2010 Chipset Mobile Application Handset Distribution OS Developers Manufacturers Developers Manufacturers Channels• MNCs such as Nokia, • MNCs use chipsets • Feature phones • OEMs assemble • There are three tiers Samsung, LG, SE, manufactured by predominantly devices incurring the of mobile device and Motorola Qualcomm, Infineon, comprise preloaded entire BOM. distribution in India - predominantly employ TI, applications. from manufacturers in-house-developed STMicroelectronics, • Thereafter, they ship to super and zonal OS. and so on. • The cost to the them to companies distributors and handset that sell these finally to retailers.• Nokia uses Symbian • Indian manufacturers manufacturer for devices to end as the OS, but other predominantly use these preloaded customers. Nokia, • The margins offered participants employ solutions from applications is in the Samsung, LG, and a by manufacturers to Java- or Linux-based MediaTek. range of 3-4%. few other channel partners are OS for their feature Chipsets account for multinational and different for global phones. • • The preloaded local manufacturers brands and Indian about 30 to 40 mobile application percent of the total manufacture manufacturers.• The Taiwanese market was valued handsets on their chipset manufacturer, cost of a feature at Rs. 580 crores • Global participants phone. own and are the MediaTek, provides its and is expected to OEMs. pay less and operate own OS, Nucleus, grow at a CAGR of in a volume-driven with chipsets. 6.9 percent from market. 2008 to 2012. Source: Frost & Sullivan 5
  6. 6. Replacement Market to be the Key Driver for the Mobile Handset MarketMobile Handset Market: Key Market Drivers and Restraints (India), 2010-2016 The emerging replacement market is expected to 1-2 years 3-4 years 5-6 years account for more than 50 percent of sales in 2011 Decreasing price points - Due to increasingMarket Drivers competition, average selling price in 2011 is expected to decline by a rate of 12 percent from that in 2010 Increasing mobile network penetration in rural parts of India 3G is expected to drive uptake of 3G- enabled devices Lack of after-sales service and supportMarket Restraints Unequal and high VAT rates in certain states Regulatory Impacts Impact: High Medium Low Source: Frost & Sullivan analysis. 6
  7. 7. CAGR of 11.8% Expected for the Mobile Handset Market 208.362 120.0% Unit Growth Rate 200.0 Unit Shipment (Million) 100.0% 150.0 98.7% 80.0% 95.235 104.88 100.0 60.0% 40.0% 50.0 10.1% 20.0% 0.0 0.0% FY 09 FY 10 FY 16 Year •Source: Frost & Sullivan Unit Shipment (Million) Unit Grow th Rate 100.00% 17% 29% The emerging replacement market is 85% 50.00% expected to 83% account for more 71% than 80 percent of sales by 2016 15% 0.00% FY09 FY10 FY16 First time buyer Replacement Units •Source: Frost & Sullivan 7
  8. 8. Trend #1: Emergence Of Indian Manufacturers • The mobile subscriber base is increasing by 9 to 10 million every month. • Ban on handsets without IMEI number removed 25 million handsets or 5 percent of the existingBusiness Opportunity base. • The replacement market is also gaining momentum, accounting for about 20 percent of the mobile market revenues. New customers in the rural market and the replacement market in urban areas are the key target segments. • Almost all the Indian manufacturers produce handsets in China, Taiwan, or South Korea andBusiness Ecosystem ship them to India. There are about 150 mobile handset OEMs in China shipping handsets to Indian companies. of OEMs • These OEMs have started to ship handsets with IMEI number to registered companies. • MediaTek, a Taiwanese-based company into/dealing with semiconductors, has brought about a Chipsets and OS revolution for low-cost local manufacturers by providing cheap chipsets when compared to those by Qualcomm, Infineon, Texas Instruments, STMicroelectronics, and so on. • MediaTek also provides Nucleus OS for feature phones charging a lump-sum amount to use it on any number of handsets by its clients. This has made it simpler for new entrants who do not have to incur a separate cost for the OS. • Local manufacturers are able to procure feature-rich handsets at low price. Distribution and • Many Indian companies start with operating in one or two states initially and create a pan-India presence subsequently. Retailing • There are about 140,000 retailers (excluding retailers with monthly sales of less than five handsets) in the country and a few exclusive mobile retail chains such as Univercell and mobile store. • Large number of Indian manufacturers entered the fray in 2010. The number of participants has Result increased from just 5 in January 2009 to more than 80 in June 2010. • The number is expected to increase to more than 120 before consolidation occurs in 2011. 8
  9. 9. Trend #2: Decreasing Price points and Channel Margins • Inexpensive smartphone chipsets • Competition between Indian Declining • Availability of high-quality open- manufacturers and global system OS Price of participants Smartphones • Opportunity for volume production and distribution Source: Frost & Sullivan • Participants in the mobile market perceive that distributors can impact the sales of a • With increasing competition, brand significantly. Indian manufacturers leveraged on this perception by paying the net margin of certain huge margins to their channel partners to up sell their products. manufacturers has decreased to less than 2 percent. Due to these limited margins, the Lower Channel Margins Indian mobile market is expected to witness consolidation in the immediate• The primary reason for low channel margins of large global brands such as Nokia and Samsung is that they depend on volume sales. future. 9
  10. 10. Trend #3: Strategic Shift Towards Smartphones for EarningHigher Margins Mobile Device Revenue Breakup Feature Phones Smartphones 65 to 75 percent is the manufacturing cost 35 to 50 percent is the manufacturing cost 4 to 6 percent on advertising 8 to 10 percent on advertising and R&D 16 to 21 percent margin for retailers as 16 to 20 percent margin for retailers as well as national and regional distributors well as national and regional distributors 5 to 8 percent net margin for 25 to 40 percent net margin for manufacturers manufacturers Source: Frost & Sullivan • Lucrative margins in the smartphone business is attracting traditional OEM players as well as retailers and distributors in India who are importing Chinese handsets and acting as resellers of the same to obtain these significant margins. 10
  11. 11. Smartphones : Definition Smartphone• This study defines smartphone as a phone with an OS that can board or host applications, which can be deployed on the mobile OS of a smartphone. These OS’s provide a framework for the development of applications.• Smartphones also have more advanced user interfaces such as touch screen technologies and other mobile computing features, including QWERTY keypads.• The smartphone application capability also needs to be advanced to support higher end applications and ability to host complex/integrated applications. 11
  12. 12. Application Development Community Key for Smartphone Ecosystem Smartphone Market: Smartphone Ecosystem (India), FY 2010 Chipset Application OS Vendors Manufacturers Development OEMs Brand Owners Community• OS vendors are key • Chipset forms another • Application forms a • OEMs help global value chain members in important value chain more important brands in • The End users using the smartphone market. component in the decision-making manufacturing their Smartphones There are only a few smartphone market. parameter for an end smartphones. In some OS developers Chipset manufacturers customer when cases, OEMs own the worldwide providing a follow one of the models compared to feature brands such as smartphone OS. They listed below: phones. There are Nokia, Samsung, LG, basically follow one of different participants in and so on. However, the models listed below: i. Providing integrated the entire smartphone in the case of Apple, application processors value chain developing China-based Foxconni. Proprietary OS for their and modems such as platform- is the OEM, and own devices such as Qualcomm dependent/independen Apple sells iPhone Market iPhone t applications. under its brand. ii. Providing only modemsii. OS on per shipment for various technologies • Participants include OS • Chinese OEMs royalty basis such as such as Infineon developers, chipset provide services at Windows manufacturers, low cost and thus, iii. Providing applicationiii. Open-source OS such processors compatible smartphone OEMs, many smartphone as Android and with various modems telecom service participants outsource Symbian providers, and their manufacturing to independent them. application developers. Source: Frost & Sullivan 12
  13. 13. Convergence and Open Source OS’s Key Drivers for Smartphone MarketSmartphone Market: Key Market Drivers and Restraints (India), 2010-2016 1-2 years 3-4 years 5-6 years Increased need for converged devices by end consumers Increased adoption of smartphone open-sourceMarket Drivers operating systems such as Android and Symbian by OEMs. Product innovation - Hardware technology is increasingly becoming efficient every year. Lowering of price points Subsidizing is difficult due to lack of operator- leveraged distribution modelMarket Restraints Over 70 percent of the population consumes only voice services, and data services have not yet received large scale acceptance. Availability of cheaper, look-alike Chinese phones Impact: High Medium Low Source: Frost & Sullivan analysis. 13
  14. 14. Smartphones Expected to be the Next Growth Engine with a CAGR of 39.2% 29.4 30.0 1000.0% 900.0% 25.0 Compound Annual Growth Rate (2010-2016) 913.8% Compound Annual Growth Rate (2010-2016) 800.0%Unit Shipment (Million) 39.2% 39.2% 700.0% 20.0 Unit Growth Rate 600.0% 15.0 500.0% 400.0% 10.0 300.0% 2.4 2.9 200.0% 5.0 20.8% 100.0% 0.0 0.0% FY 09 FY 10 FY 16 Year Source: Frost & Sullivan Unit Shipment (Million) Unit Grow th Rate Explosive growth expected in the Smartphone Segment , ,the future growth engine of the Explosive growth expected in the Smartphone Segment the future growth engine of the mobile market driven by an ecosystem of apps and innovative form factors mobile market driven by an ecosystem of apps and innovative form factors 14
  15. 15. Trend #1: Operating System Perception Playing a Key Rolein Smartphone Selection Smartphone Market: Operating System - Perception Mapping (India) FY 2010 • Android, iOS,BADA for netbooks, and other devices • S60, Windows, and BADA • Android, S60, WebOS, Blackberry OS • S40, and Java OS with advanced UI • Nucleus and other Java-based feature phone OS Source: Frost & Sullivan 15
  16. 16. Trend #2: Open Market most prevalent model adopted inthe Indian Market Open Market • In the open market model, handset manufacturers sell devices through distributors and retailers. • Handset manufacturers leverage an open market model Open Market by having strategic partnerships and alliances with large distributors. • This can be further classified into • Modern Trade Distribution • Traditional Retail Models • Institutional Sales • Main participants following open market model in India are HTC, Nokia, Samsung, LG, and so on. Operator Leveraged Operator Leveraged • Smartphones are sold through service providers and locked for services of these providers. • There are two methods to lock consumers to service providers: • Hard Locking • Soft Locking 16
  17. 17. Trend #3: Bargaining Power of Substitutes, Customers, Suppliers and New Entrants Key in the Smartphone Market Smartphone Market: Force Field Analysis of Participants (India), FY 2010 Distributor’s power Long Fully developed Chinese ecosystem Term OS - Open source Price sensitivity Feature differentiation Technological breakthroughPeriod of Impact Tablets Look-alike phones Multiple choice Medium Technological breakthrough Term Price sensitivity Mini notebooks OS - Open source Fully developed Chinese ecosystem Distributor’s power New Indian manufacturers High-end mobile phones OS - Open source Short Chipset manufacturers New technology with chip vendor Term MTK chips and open-source OS Price sensitivity Tablets Device commoditization Mini notebooks Look-alike devices Low Medium High Bargaining Power of the Key Participants in Value Chain •Substitute •Customers •Suppliers •New Entrants Source: Frost & Sullivan 17
  18. 18. Key Take-Aways SMARTPHONES MOBILE HANDSETS• The Smartphone ecosystem The key strategies for urban market provides growth opportunities for penetration include sustained participants. This market is expected branding effort and improved quality to witness significant growth with of products high profit margins.• This market space is highly dynamic, and participants need to Opportunities Opportunities Provision of innovative products at constantly innovate on the OS and affordable price is likely to be the Abound! Abound! major driver for growth in the rural product feature fronts. market.• A comprehensive value proposition, which includes a rich feature set, a high-performing OS, Replacement is likely to help maintain and an application ecosystem growth of the Indian mobile market, that provides end users a better even after it nears high level of mobile penetration. experience is the key to success 18
  19. 19. Next Steps Request a proposal for or Growth Partnership Services or Growth Consulting Services to support you and your team to accelerate the growth of your company. ( +91 (0) 22 6160 6666 Join us at our annual Growth, Innovation, and Leadership 2011: A Frost & Sullivan Global Congress on Corporate Growth ( Register for Frost & Sullivan’s Growth Opportunity Newsletter and keep abreast of innovative growth opportunities ( 19
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  22. 22. For Additional InformationCaroline Lewis Thejaswi PCorporate Communications Industry Analyst91.022.6607 2000 Information & Technology Practice thejaswip@frost.comAbhishek ChauhanSenior ConsultantInformation & CommunicationTechnology 22