While much of the “low cost smartphone” discussion centers on Nokia, Huawei or ZTE, these firms are in reality targeting the midrange of the cell-phone space. As the current feature phone category morphs into basic smartphones, new vendors and component suppliers will come into play, and India will get its chance to create a home-grown mobile industry at last.
NPD In-Stat [forecasts] low cost Android smartphones – those currently priced under $150 - will take 80% of the total smartphone market in Africa, India and China by 2015. Unit shipments of low cost Android devices will reach 340 million worldwide in 2015. At the high end of this subsection will be Nokia, Samsung, ZTE and Huawei, while at the low end there will be numerous grey market vendors using unlicensed components. But the face of the bulk of this segment was seen recently when Chinese wireless baseband supplier Spreadtrum agreed to invest $10 million in Indian handset manufacturer Micromax. As a result it will also become one of Micromax's preferred chipset suppliers.
This highlights an increasingly common pattern – the low cost chip suppliers from China and Taiwan, such as MediaTek and Spreadtrum, increasingly working with Indian OEMs as well as those in their own countries, and moving up from feature phones into affordable Android or even Windows handsets with 3G. These partnerships will target their home territories and other emerging markets, and over time may even penetrate the prepaid sectors in more developed mobile economies, putting pressure on the high volume, big name suppliers like Samsung and Nokia (currently market leaders in China and India respectively) But the situation is fragmenting, initially in feature phones and later in smartphones.
Gartner says that China's G'five and Indian manufacturers Karbonn Mobile and Micromax now occupy top five positions in India's device league table, behind Nokia and second placed Samsung. Local players are weakening global brands at the low end and are starting to move up towards the midmarket, and even into non-Indian territories. “The entry of Indian mobile handset players focusing on low end, value conscious consumers has intensified competition in the Indian mobile device market,” says principal analyst Anshul Gupta.
So Spreadtrum's interest in Micromax is obvious. The firm ships about 4 million handsets per quarter and is the world's twelfth biggest vendor, selling all over the Indian subcontinent and also in Hong Kong, Afghanistan, Brazil and the Middle East. It offers more than 60 models ranging from dual-SIM low end phones to 3G Android models.
But it will face stiff competition as the Indian handset industry grows like wildfire. Five years ago there were seven brands operating in India's cellphone market and only a couple were home-based. Now there are 180, many of them local, young suppliers like Karbonn, Spice, Lava, Maxx and Olive.
MediaTek and more recently Spreadtrum have been major forces driving these companies' progress, providing low cost systems-on-chip as well as connections into the powerful Taiwanese white label manufacturing base (though India is building its own capabilities in that area too). Following a pattern already seen among Chinese brands, the Indian firms harnessed MediaTek's affordable chips and simple reference designs.
Many of the Indian brands were originally set up by local distributors of global brands such as Nokia, who have combined the Taiwanese cost base with their own strong distribution experience, and have incentivized the channel with high margins. According to Jayanth Kolla, partner in Convergence Catalyst, by primarily selling white label devices, they were able to achieve operating margins over 35%, targeting low end consumers before moving into branded offerings, though competition and price wars are now eating into those margins. They also stole a march on international majors in some important features for the Indian market, notably multi-SIM support, now (but belatedly) a hallmark of Nokia's range here.
Some are now moving into international markets – as well as Micromax, Spice has a strategy called I2I (Indonesia to Ivory Coast), while Olive is focusing on the Baltic region.