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India, not China, holds key to future smartphone growth

Monday, 24 Feb 2014 | 10:55 PM ET
This is where future smartphone growth lies...
Tuesday, 25 Feb 2014 | 12:13 AM ET
As China sees an ease in demand, India is where future growth will be for the smartphone industry, according to a new report. CNBC's Julia Wood reports.

India holds the key to future growth in the smartphone market as the maturation of the Chinese market has seen an ease in demand, said International Data Corporation (IDC).

With smartphones already accounting for over 80 percent of China's overall phone sales, the explosive growth has come to a halt. Smartphone shipments to the mainland fell 4.3 percent on-quarter in the October to December period to 90.8 million, the first drop-off since the second quarter of 2011, according to IDC.

In India, by contrast, feature phones - lower-end mobile devices with less advanced computing ability and connectivity than smartphones - continue to make up a large portion of overall mobile handset sales.

(Read more: China's stellar smartphone market dips)

The country represented more than a quarter of the global feature phone market in 2013. Over 200 million feature phones below $100 were shipped to the country last year compared with around 70 million shipped to China, highlighting the vast potential to covert feature phone users to smartphone users.

Holger Leue | Lonely Planet Images | Getty Images

After India, the Middle East and Africa and Asia Pacific (excluding Japan, China and India) are the biggest feature phone markets, accounting for 150 million and 141 million of shipments, respectively, last year.

(Read more: Apple, China Mobile strike deal to bring iPhone to China in January)

"Some 660 million feature phones were shipped last year, which could add two thirds to the size of the current global smartphone market," said Simon Baker, Program Manager for mobile phones at IDC CEMA. "This is a very big market opportunity."

However, converting feature phone sales into smartphone sales in emerging markets implies a relentless push towards low cost.

(Read more: ARM chief dismisses talk of smartphone saturation)

"Growth in the India market doesn't rely on high-end devices like the iPhone, but on low-cost Android phones. Nearly half of the smartphones shipped in India in 2013 cost less than $120," said Kiranjeet Kaur, senior market analyst for mobile phones at IDC Asia/Pacific.

IDC research showed nearly half the mobile handsets sold across the world have retail prices of less than $100 without sales tax. Two thirds of those have prices of less than $50.

As a result, smartphone vendors are positioning for this next wave of cost pressure. Samsung, for example, is increasingly moving production to Vietnam in the face of rising labor costs in China, while Hon Hai recently announced plans to build a plant in Indonesia in order to furnish a cheaper production cost base.

—By CNBC's Ansuya Harjani. Follow her on Twitter @Ansuya_H

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