Challenging times for mobile handset makers as falling rupee gives jitters

On Friday evening, the exchange rate for US dollar versus rupee stood at 72.55. The value of the local currency had depreciated by 13.9 per cent, after rupee touching the 73-mark in late August, making it one of the worst performing Asian currencies. While its implications are being felt on the import-dependent sectors such as petroleum and gold, the shockwave it is sending across mobile handsets industry mostly remains under the surface.

A steady slide in currency rate has left handset manufacturers — who depend on Chinese components — in jitters. Around 90 per cent of the smartphone components are imported. Companies like Intex was forced to withdraw its existing models and replace them with new ones while others like OnePlus is contemplating a round of price hike in the coming months.

Since June, the cost burden has caused frenzy, which resulted in higher number of product launches in the run up to festive season. Estimates suggest, since June around 250 new smartphone models were lined up, compared to some 200-odd models launched in the previous years.

Handset makers with wider portfolios began to feel the pinch as rupee slid to 68 a dollar in May. They came up with a solution by phasing out some of the existing models that turned unviable. 

Faisal Kawoosa, lead analyst at TechArc, said the measure ensured the handsets were phased out quicker than usual. “Unlike other years, launches picked up from early June, as companies had to come up with new models with new prices as cost went up significantly.” Jaipal Singh, analyst at IDC India, said, “Many had to replace the older models as hiking prices is not a common phenomenon. This has changed the entire mobile handset ecosystem in the country.”

Nidhi Markanday, director at Intex Technologies, approved this step. She said the new handsets in place of the existing ones was a measure that Intex had planned. Arijeet Talapatra, chief executive at Transsion Holding, said, “We are affected by the increase in cost. We have partially factored in the additional cost by launching new models. But to stay competitive, we are not passing on the entire burden to consumers.” The Chinese handset giant, which operates in 60 countries, is also leveraging its wide-spread ecosystem to keep prices down. Others such as Xiaomi, Vivo, Oppo, and Samsung, too, felt the heat and had to speed up new launches. According to a Xiaomi India spokesperson, the rupee depreciation has build up a lot of pressure for all brands. Xiaomi has launched six models recently. While the number is close to a dozen for Samsung, Vivo and Oppo have come up with close to half a dozen models each.

The matter, however, got worse because of its timing as the market is approaching the festive season, when over 30 per cent of sales occur and close to 60 per cent of launches take place.

According to experts, procurement of Chinese components like smartphone camera modules is becoming difficult. Now, Chinese component suppliers are refusing to take bulk order hoping further rupee depreciation could rake in higher per unit revenue for them. However, not every brand has the liberty of replacing old models. OnePlus, for example, usually places one model at a time on the retail shelf. “We have to increase price of our handset in the next three months,” OnePlus said.

The Xiaomi India spokesperson said, “If rupee continues to depreciate at this rate, we will have to re-evaluate the prices of Xiaomi smartphones towards the end of the year, especially for a few of the newly-launched products.”