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. Today’s Presenters
Thejaswi Parameshwaran, Industry Analyst
Frost & Sullivan
2

3. Focus Points
Agenda
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 Smartphone's 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. 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
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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
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6. Replacement Market to be the Key Driver for the Mobile
Handset Market
Mobile 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 increasing
Market 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 support
Market Restraints
Unequal and high VAT rates in certain states
Regulatory Impacts
Impact: High Medium Low Source: Frost & Sullivan analysis.
6

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
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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 existing
Business 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 and
Business 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.
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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. Trend #3: Strategic Shift Towards Smartphones for Earning
Higher 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. 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.
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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 Smartphone's
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 Foxconn
i. 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 modems
ii. 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 application
iii. 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
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13. Convergence and Open Source OS’s Key Drivers for
Smartphone Market
Smartphone 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-source
Market 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 model
Market 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.
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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. Trend #1: Operating System Perception Playing a Key Role
in 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. Trend #2: Open Market most prevalent model adopted in
the 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
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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 breakthrough
Period 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. 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

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22. For Additional Information
Caroline Lewis Thejaswi P
Corporate Communications Industry Analyst
91.022.6607 2000 Information & Communication
Caroline.lewis@frost.com Technology Practice
thejaswip@frost.com
Abhishek Chauhan
Senior Consultant
Information & Communication
Technology Practice
abhishekc1@frost.com
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