the mobile handset & smartphone market -india
TRANSCRIPT
The Next Growth Engine of the Dynamic Mobile Ecosystem:
Robust Growth in Smartphones and Feature Rich Mobile Handsets, Opportunities Abound!
Frost & Sullivan’s Growth Consulting can assist with your growth strategies
Thejaswi Parameshwaran
Information & Communication Technologies
20, May, 2011
2
Today’s Presenters
Thejaswi Parameshwaran, Industry Analyst
Frost & Sullivan
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
4
Product Segmentation
MobilesMobiles
1. Ultra Low-cost Mobile
Handsets (ULCMHs)
1. Ultra Low-cost Mobile
Handsets (ULCMHs)2. Low- to Medium-cost
Mobile Handsets
(LCMHs)
2. Low- to Medium-cost
Mobile Handsets
(LCMHs)
3. High-cost Mobile
Handsets (HCMH)
3. High-cost Mobile
Handsets (HCMH)
• Price range:
• Less than Rs. 1,500
• Key features include
B&W screen, messaging,
and phone book
• Price range:
• Less than Rs. 1,500
• Key features include
B&W screen, messaging,
and phone book
• Price range:
• Rs. 1,500 to Rs. 2,500
• Key features include
colored screen, FM radio,
and VGA camera
• Price range:
• Rs. 1,500 to Rs. 2,500
• Key features include
colored screen, FM radio,
and VGA camera
• Price range:
• Rs. 2,500 to Rs. 4,000
• Key features include
GPRS, extendible
memory, MP3 player, and
digital camera
• Price range:
• Rs. 2,500 to Rs. 4,000
• Key features include
GPRS, extendible
memory, MP3 player, and
digital camera
4. Smartphones4. Smartphones
• Price range:
• Greater than Rs. 4,000
• Key features include
application installation,
QWERTY keypad/touch
screen, dual SIM, Wi-Fi,
and 3G
• Price range:
• Greater than Rs. 4,000
• Key features include
application installation,
QWERTY keypad/touch
screen, dual SIM, Wi-Fi,
and 3G
•Source: Frost & Sullivan
Mobile Handset Market: Product Segmentation (India), FY 2010
5
• MNCs such as Nokia, Samsung, LG, SE, and Motorola predominantly employ in-house-developed OS.
• Nokia uses Symbian as the OS, but other participants employ Java- or Linux-based OS for their feature phones.
• The Taiwanese chipset manufacturer, MediaTek, provides its own OS, Nucleus, with chipsets.
• MNCs use chipsets manufactured by Qualcomm, Infineon, TI, STMicroelectronics, and so on.
• Indian manufacturers predominantly use solutions from MediaTek.
• Chipsets account for about 30 to 40 percent of the total cost of a feature phone.
• OEMs assemble devices incurring the entire BOM.
• Thereafter, they ship them to companies that sell these devices to end customers. Nokia, Samsung, LG, and a few other multinational and local manufacturers manufacture handsets on their own and are the OEMs.
• Feature phones predominantly comprise preloaded applications.
• The cost to the handset manufacturer for these preloaded applications is in the range of 3-4%.
• The preloaded mobile application market was valued at Rs. 580 crores and is expected to grow at a CAGR of 6.9 percent from 2008 to 2012.
Source: Frost & Sullivan
Mobile Handset Market: Mobile Handset Ecosystem (India), FY 2010
• There are three tiers of mobile device distribution in India -from manufacturers to super and zonal distributors and finally to retailers.
• The margins offered by manufacturers to channel partners are different for global brands and Indian manufacturers.
• Global participants pay less and operate in a volume-driven market.
Distribution Channels Key Ecosystem Participant for the Mobile Handset Market
Mobile ApplicationDevelopers
Chipset Manufacturers
Handset Manufacturers
DistributionChannels
OS Developers
6
Replacement Market to be the Key Driver for the Mobile Handset Market
Mark
et
Dri
vers
Mark
et
Res
train
ts
1-2 years 3-4 years 5-6 yearsThe emerging replacement market is expected to
account for more than 50 percent of sales in 2011
Increasing mobile network penetration in
rural parts of India
Decreasing price points - Due to increasing
competition, average selling price in 2011 is expected
to decline by a rate of 12 percent from that in 2010
Unequal and high VAT rates in certain states
3G is expected to drive uptake of 3G-
enabled devices
Lack of after-sales service and support
Impact: High Medium Low
Mobile Handset Market: Key Market Drivers and Restraints (India), 2010-2016
Source: Frost & Sullivan analysis.
Regulatory Impacts
7
CAGR of 11.8% Expected for the Mobile Handset Market
95.235 104.88
208.362
10.1%
98.7%
0.0
50.0
100.0
150.0
200.0
FY 09 FY 10 FY 16
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
Unit Shipment (Million) Unit Grow th Rate
Un
it S
hip
men
t (M
illio
n)
Un
it G
row
th R
ate
Year
83%71%
15%
17%29%
85%
0.00%
50.00%
100.00%
FY09 FY10 FY16
First time buyer Replacement Units
The emerging
replacement
market is
expected to
account for more
than 80 percent
of sales by 2016
•Source: Frost & Sullivan
•Source: Frost & Sullivan
8
Trend #1: Emergence Of Indian Manufacturers
Result
Distribution and Retailing
Business Ecosystemof OEMs
Business Opportunity
• 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
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.
• Large number of Indian manufacturers entered the fray in 2010. The number of participants has 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.
• Almost all the Indian manufacturers produce handsets in China, Taiwan, or South Korea and
ship them to India. There are about 150 mobile handset OEMs in China shipping handsets to Indian companies.
• 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
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.
Chipsets and OS
• Local manufacturers are able to procure feature-rich handsets at low price.• Many Indian companies start with operating in one or two states initially and create a pan-India
presence subsequently.• 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.
9
Trend #2: Decreasing Price points and Channel Margins
• Inexpensive smartphone chipsets• Inexpensive smartphone chipsets
• Competition between Indian
manufacturers and global
participants
• Competition between Indian
manufacturers and global
participants
Declining Price of
Smartphones
Declining Price of
Smartphones
• Availability of high-quality open-
system OS
• Availability of high-quality open-
system OS
• Opportunity for volume production and distribution• Opportunity for volume production and distribution
Lower Channel MarginsLower Channel Margins
• Participants in the mobile market perceive that distributors can impact the sales of a
brand significantly. Indian manufacturers leveraged on this perception by paying
huge margins to their channel partners to up sell their products.
• Participants in the mobile market perceive that distributors can impact the sales of a
brand significantly. Indian manufacturers leveraged on this perception by paying
huge margins to their channel partners to up sell their products.
• With increasing competition,
the net margin of certain
manufacturers has decreased
to less than 2 percent. Due to
these limited margins, the
Indian mobile market is
expected to witness
consolidation in the immediate
future.
• With increasing competition,
the net margin of certain
manufacturers has decreased
to less than 2 percent. Due to
these limited margins, the
Indian mobile market is
expected to witness
consolidation in the immediate
future.• The primary reason for low channel margins of large global brands such as Nokia
and Samsung is that they depend on volume sales.
• The primary reason for low channel margins of large global brands such as Nokia
and Samsung is that they depend on volume sales.
Source: Frost & Sullivan
10
35 to 50 percent is the manufacturing cost
8 to 10 percent on advertising and R&D
16 to 20 percent margin for retailers as well as national and regional distributors
25 to 40 percent net margin for manufacturers
65 to 75 percent is the manufacturing cost
4 to 6 percent on advertising
16 to 21 percent margin for retailers as well as national and regional distributors
5 to 8 percent net margin for manufacturers
Mobile Device Revenue Breakup
SmartphonesFeature Phones
Trend #3: Strategic Shift Towards Smartphones for Earning Higher Margins
• 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.
• 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.
Source: Frost & Sullivan
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.
12
• OS vendors are key value chain members in the smartphone market. There are only a few OS developers worldwide providing a smartphone OS. They basically follow one of the models listed below:
i. Proprietary OS for their own devices such as iPhone
ii. OS on per shipment royalty basis such as Windows
iii.Open-source OS such as Android and Symbian
• Chipset forms another important value chain component in the smartphone market. Chipset manufacturers follow one of the models listed below:
i. Providing integrated application processors and modems such as Qualcomm
ii. Providing only modems for various technologies such as Infineon
iii.Providing application processors compatible with various modems
• Application forms a more important decision-making parameter for an end customer when compared to feature phones. There are different participants in the entire smartphone value chain developing platform-dependent/independent applications.
• Participants include OS developers, chipset manufacturers, smartphone OEMs, telecom service providers, and independent application developers.
• OEMs help global brands in manufacturing their smartphones. In some cases, OEMs own the brands such as Nokia, Samsung, LG, and so on. However, in the case of Apple, China-based Foxconn is the OEM, and Apple sells iPhone under its brand.
• Chinese OEMs provide services at low cost and thus, many smartphone participants outsource their manufacturing to them.
Market
Source: Frost & Sullivan
Application Development Community Key for Smartphone Ecosystem
OS VendorsChipsetManufacturers
Application Development Community
OEMs Brand Owners
• The End users using Smartphone's
Smartphone Market: Smartphone Ecosystem (India), FY 2010
13
Convergence and Open Source OS’s Key Drivers for Smartphone Market
Mark
et
Dri
vers
Mark
et
Res
train
ts
1-2 years 3-4 years 5-6 yearsIncreased need for converged devices by end consumers
Product innovation - Hardware
technology is increasingly becoming
efficient every year.
Availability of cheaper, look-alike Chinese phones
Increased adoption of smartphone open-source operating systems such as Android and
Symbian by OEMs.
Over 70 percent of the population consumes
only voice services, and data services have
not yet received large scale acceptance.
Lowering of price points
Subsidizing is difficult due to lack of operator-leveraged distribution model
Impact: High Medium Low
Smartphone Market: Key Market Drivers and Restraints (India), 2010-2016
Source: Frost & Sullivan analysis.
14
Smartphones Expected to be the Next Growth Engine with a CAGR of 39.2%
2.4 2.9
29.4
20.8%
913.8%
0.0
5.0
10.0
15.0
20.0
25.0
30.0
FY 09 FY 10 FY 16
0.0%
100.0%
200.0%
300.0%
400.0%
500.0%
600.0%
700.0%
800.0%
900.0%
1000.0%
Unit Shipment (Million) Unit Grow th Rate
Un
it S
hip
men
t (M
illio
n)
Un
it G
row
th R
ate
Year
Compound Annual Growth Rate (2010-2016)
39.2%Compound Annual Growth Rate (2010-2016)
39.2%
Explosive growth expected in the Smartphone Segment , the future growth engine of the
mobile market driven by an ecosystem of apps and innovative form factorsExplosive growth expected in the Smartphone Segment , the future growth engine of the
mobile market driven by an ecosystem of apps and innovative form factors
Source: Frost & Sullivan
15
Trend #1: Operating System Perception Playing a Key Role in Smartphone Selection
• Android,
iOS,BADA for
netbooks, and
other devices
• Android,
iOS,BADA for
netbooks, and
other devices
• S60, Windows,
and BADA
• S60, Windows,
and BADA
• Android, S60,
WebOS,
Blackberry OS
• Android, S60,
WebOS,
Blackberry OS
• S40, and Java OS
with advanced UI
• S40, and Java OS
with advanced UI
• Nucleus and other
Java-based
feature phone OS
• Nucleus and other
Java-based
feature phone OS
Smartphone Market: Operating System - Perception Mapping (India) FY 2010Smartphone Market: Operating System - Perception Mapping (India) FY 2010
Source: Frost & Sullivan
16
Trend #2: Open Market most prevalent model adopted in the Indian Market
DistributionModels
DistributionModels
Open MarketOpen Market
OperatorLeveraged
OperatorLeveraged
Open Market
• In the open market model, handset manufacturers sell
devices through distributors and retailers.
• Handset manufacturers leverage an open market model
by having strategic partnerships and alliances with large
distributors.
• This can be further classified into
• Modern Trade
• Traditional Retail
• Institutional Sales
• Main participants following open market model in India
are HTC, Nokia, Samsung, LG, and so on.
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
17
Trend #3: Bargaining Power of Substitutes, Customers, Suppliers and New Entrants Key in the Smartphone Market
Peri
od
of
Imp
ac
t
Bargaining Power of the Key Participants in Value ChainLow High
Long Term
Short Term
Medium
Medium Term
•Suppliers•Customers•Substitute
Look-alike devices
Tablets
Chipset manufacturers
Source: Frost & Sullivan•New Entrants
Mini notebooksDevice commoditization
Price sensitivity
OS - Open source
New technology with chip vendor
New Indian manufacturers
MTK chips and open-source OS
Price sensitivity
Technological breakthrough
Mini notebooksOS - Open source
Fully developed Chinese ecosystem
High-end mobile phones
Look-alike phones
Multiple choice
Distributor’s power
Fully developed Chinese ecosystem
OS - Open source Price sensitivity
Feature differentiation
Technological breakthrough
Distributor’s power
Smartphone Market: Force Field Analysis of Participants (India), FY 2010
Tablets
18
Key Take-Aways
Opportunities Abound!
Opportunities Abound!
• The Smartphone ecosystem
provides growth opportunities for
participants. This market is expected
to witness significant growth with
high profit margins.
• This market space is highly
dynamic, and participants need to
constantly innovate on the OS and
product feature fronts.
• A comprehensive value
proposition, which includes a rich
feature set, a high-performing OS,
and an application ecosystem
that provides end users a better
experience is the key to success
The key strategies for urban market
penetration include sustained
branding effort and improved quality
of products
Provision of innovative products at
affordable price is likely to be the
major driver for growth in the rural
market.
Replacement is likely to help maintain
growth of the Indian mobile market,
even after it nears high level of mobile
penetration.
SMARTPHONES MOBILE HANDSETS
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. ([email protected]) +91 (0) 22 6160 6666
� Join us at our annual Growth, Innovation, and Leadership 2011: A Frost & Sullivan Global Congress on Corporate Growth (www.gil-global.com)
� Register for Frost & Sullivan’s Growth Opportunity Newsletter and keepabreast of innovative growth opportunities(www.frost.com/news)
20
Your Feedback is Important to Us
Growth Forecasts?
Competitive Structure?
Emerging Trends?
Strategic Recommendations?
Other?
Please inform us by “Rating” this presentation.
What would you like to see from Frost & Sullivan?
Frost & Sullivan’s Growth Consulting can assist with your growth strategies
21
http://twitter.com/frost_sullivan
Follow Frost & Sullivan on Facebook, LinkedIn, SlideShare, and Twitter
http://www.facebook.com/pages/Frost-Sullivan/249995031751?ref=ts
http://www.linkedin.com/companies/4506
http://www.slideshare.net/FrostandSullivan
22
For Additional Information
Caroline Lewis
Corporate Communications
91.022.6607 2000
Thejaswi P
Industry Analyst
Information & Communication Technology Practice
Abhishek Chauhan
Senior Consultant
Information & Communication Technology Practice