Awaiting reboot: Feature phone upgrade delay hits smartphone sales

Smartphone mobile device makers are facing a big challenge to push sales. On the one hand, shipments of feature phones are not falling as quickly as was anticipated with rese­arch agency Counterpoint projecting that they will remain at the same level this year as in CY2022, pegged at 61 million, as they were in CY2021.
 

On the other, upgrading of feature phones to smartphones is also slower and this is not helping either. Feature phone customers are either replacing their phones after a longer period or buying a cheaper secondhand smartphone. Consequently, companies selling new smartphones have seen their volume growth stagnate from 2020 when their shipments hit 150 million (in 2022 they did 152 million). In 2021, shipments went up substantially to 166 million only to drop again in 2022.
 

“The number of customers buying a smartphone touched 200 million in CY2022,” said Neil Shah, partner and co-founder of Counterpoint Research. “But out of this, 30-50 million phones were refurbished smartphones which are cheaper and whose market is bo­oming. They are being bought by tho­se who want to upgrade from feature to smartphones and not new ones .”

 

This trend impacts companies as, according to the ICEA, they had projected sales of 200 million new smartphone shipments for CY2022. Clearly they missed the target by around 50 million. Shah also concedes that the fall in shipments of feature phones has not been as sharp as anticipated. That is because the current installed base of mobile phones is around 800 million out of which 200 million are still feature phones.
 

“There is a large market of customers who still do not have a phone and they will buy a feature phone first. We think that feature phones will fall further but even after 3-4 years, they will still have a base of 15-20 million,” said Shah.
 

The drop in feature phones shipments between CY2018 to CY2019 was a substantial 72 million mobiles. But this slowed down substantially betw­een CY2019 and CY2020 when feature phone shipments decreased by 24 million. During the pandemic years of CY2020 and CY2021 the decrease was even lower, of just 4 million.
 

However, in FY2022, feature phone shipments fell by 32 million over CY2021, closing at 61 million. Yet they still accounted for 29 per cent of total  mobile shipments for the year.
 

As for CY23, the number is expected to remain the same which means no shift towards upgrading to smartphones.  Experts say the reason is the big price difference between entry level 2G feature phones and entry level smartphones. Feature phones are currently available for Rs 700-800 while a reasonable smartphone costs Rs 6,000-Rs 7,000 (the average selling price is much higher) which is powered on 4G. If customers are looking for a 5G phone, the gap is even higher at around Rs 13,000.
 

Companies like Reliance Jio are offering cheaper 4G feature phones at a really affordable Rs 1,299 but they are locked into the company’s own network. Another factor is the growing trend, post-pandemic, of holding on to a phone for longer, replacing it only after around 36 months on average instead of the earlier 18-24 months. According to Counterpoint, the share of two such feature phones — Jio Bharat and the itel Guru series — in the overall feature phone market was 10 per cent in Q2 2023 and it believes this will rise to 18 per cent by the end of the year.
 

In 2023, Indian smartphone shipments continued to decline by 3 per cent year-on-year in Q2 2023 (April-June), the fourth consecutive decline in four quarters but its magnitude decreased from 19 per cent in Q1 2023.
 

The good news for mobile makers is that the premium segment was on a roll, growing 112 per cent in Q2 and contributing to 17 per cent of total shipments. This has helped companies to increase their revenues despite overall volumes taking a hit.