India beats US as world's 2nd-largest smartphone market. Here's why

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India has overtaken the USA as the second-largest smartphone market during July-September as shipments touched a record high of 40 million units, said Singapore-based analyst firm Canalys. According to a recent report, after a wobble in June quarter, the country’s smartphone market recovered quickly, with shipments growing 23 per cent year-on-year in September.

“This growth comes as a relief to the smartphone industry. Doubts about India’s market potential are clearly dispelled by this result,” said Canalys research analyst Ishan Dutt. “There are close to 100 mobile device brands sold in India, with more vendors arriving every quarter. In addition, India has one of the most complex channel landscapes, but with low barriers to entry. Growth will continue. Low smartphone penetration and the explosion of LTE are the main drivers," the analyst added.

Despite posting excellent results, the market continues to remain dominated by the top five vendors -- Samsung, Xiaomi, Vivo, Oppo and Lenovo -- now accounting for 75 per cent of total shipments in the country. Samsung shipped 9.4 million smartphones, almost 30 per cent more than in September quarter last year. Second-placed Xiaomi increased shipments by over 290 per cent to 9.2 million units. 

“Xiaomi’s growth is a clear example of how a successful online brand can effectively enter the offline market while maintaining low overheads,” said Canalys analyst Rushabh Doshi. “But Xiaomi focuses on the low end. It struggles in the mid-range (devices priced between Rs 15,000 and Rs 20,000 [US$230 and US$310]), where Samsung, Oppo and Vivo are particularly strong. Nevertheless, we predict that Xiaomi’s continued go-to-market innovations will allow it to overtake Samsung within a couple of quarters.”

Incidentally, during the quarter, Xiaomi closed in on market leader Samsung, which is now ahead by only half a percentage point market share, according to Counterpoint Research.

Canalys further said: "Apple began local production in India earlier this year, and its iPhone shipments more than doubled to 900,000 units in September quarter 2017 compared with last year - impressive growth in a market that is skewed toward low-end smartphones."

After a rocky start to Goods and Services Tax (GST), the market has shown strong signs of stability in July-September, with most of the channel adapting to the new rules on time. “The Indian economy is proving to be very strong in the second half of 2017, now that the twin shocks of GST and demonetisation are behind it,” said Doshi. “Reduced indirect taxes have added new equity to the market, with distributors and retailers able to serve areas beyond their home regions as inter-state operations become easier. As the infrastructure sector matures, consolidation in distribution is inevitable,” he added.

According to industry experts, the massive surge in imports during September quarter is not a sign of consumption boom. Rather it is a reflection of the changing market dynamics, affected by various macro-economic factors and recent changes in government policies. 

After massive destocking of the inventory in the run-up to the introduction of GST, during May and June, the vendors and trader partners were left with very little stock levels. While usually, vendors maintain stocks that could last them at least 45-60 days, for distributors it is 30 days. Major retailers prefer to maintain their inventory for 15days. However, the destocking frenzy led them clearing off stocks and at the first week of July, when GST came into effect, vendors were left with only a week’s inventory. For distributors and retailers, it was even less. This was a key reason for such huge orders that pumped up numbers during the quarter.

Also, after three-quarters of disruption, the manufacturers and or vendors were bullish about a bumper sale during the festive season, which began in last August this year. According to analyst firm counterpoint research, vendors aggressively pushed handsets into the trade channels in high volumes during the period. This only aided the unparalleled growth in shipment.

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