We believe Meta’s next major Quest device since 2020 will be launched in 2023. It makes sense, as currently there is no significant hardware advancement in VR headsets for the affordable segment. Also, the consumer is holding on to VR devices longer.

While Quest 2’s cumulative shipments are 1.5 times higher than its next biggest competitor, Sony PSVR, it will face more competition from the highly anticipated PSVR 2, as well as the devices that DPVR and Pico launch in 2022. We saw an increase in DPVR’s presence in overseas markets in 2021 and it will continue to expand in 2022. Since acquiring Pico, ByteDance, the parent of TikTok, is pouring a lot of resources to strengthen the Pico brand with an increased focus on content as well as through faster staff hiring, superior consumer VR hardware and competitive pricing.

We estimate that Meta will ship nearly 12 million VR headsets in 2022, including the upcoming Project Cambria product, which will be launched later in 2022 to showcase Meta’s potential capabilities. However, more than 80% of the volume will be driven by Quest 2, which will be available throughout the year at a price point that has proven to be a sweet spot for VR headsets.

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A biometric payment card works by using biometrics (iris, facial, or fingerprints) to address multifactor authentication. Currently, fingerprints are used as the key form of biometric identity in biometric payment cards. In biometric payment cards, the verification is done directly on the card while retaining existing POS infrastructure.

This Insight will highlight opportunities in the area of biometric payment cards and also in the under-display smartphone sensor.

Fingerprints has always been known for its biometric innovation and has been a leader in biometrics since 1997. Expertise in biometric systems consisting of sensors, software, algorithms, and tools puts it in a strong position to expand into new application areas, including biometric smart cards. E.g. Q4 2019 saw the world’s first commercial launch of biometric payment cards by Cornèrcard in Switzerland, which included Fingerprints’ sensor module and software platform for payments. Fingerprints’ solution with Thales later achieved the first certification from a major payment network. Fingerprints were also a part of the UK’s first market trial for biometric payment cards by NatWest, partnering with Thales. This is a result of last year’s partnership of Fingerprints and Thales where the latter will offer EMV payment cards to banks powered by Fingerprints’ sensor and biometric software platform. There have been other notable announcements in the space. There are other players too which are active in the space and collaborating within the value chain to provide cost-effective solutions. Idemia recently chose IDEX biometrics to provide biometric sensors to be integrated into its new biometric payment cards. Idemia also signed an exclusive partnership and distribution agreement last year with Zwipe to co-invest in a platform to bring biometric payment cards to the mass market. More partnerships in this space will be crucial for mass adoption.

Fingerprints conducted a study in China, France, and the UK which indicates consumer appetite for biometric payment cards. This initial positive response should accelerate the large scale commercial roll-outs of the biometric payment cards. The ongoing pandemic will ensure that consumers are likely to increasingly favor contactless card payments.

Cash is facing strong competition from digital payments, with contactless cards and mobile payments rising. Alongside this, there is a sizeable market for the adoption of biometrics in card payments. It’s a similar transition to that from feature phones to smartphones when comparing a normal card to biometric cards with respect to security and the role of security in contactless card payments being paramount to its continued success. In an industry controlled by three big players Visa, Mastercard and American Express (capturing 3/5^th of the card market) a push by any one or two of the players to contactless will see adoption accelerating and we have already seen the signs of the same. Some regions are aligned well to leverage this opportunity like contactless payments works in Europe because of the universal provision of contactless points of sale terminals. Mastercard has recently enabled a contactless limit raise in 29 European markets and also ensured all payment terminals became contactless-ready from 1st January 2020. 75% of all Mastercard transactions across Europe are now contactless and this makes a strong case for the adoption of biometric cards in Europe followed by other countries such as China. Recently the FPC-BEP (biometric software platform from Fingerprints) and T-Shape fingerprint sensor solution, passed the accuracy and security test performed by the Bank Card Test Center (BCTC) in China. Currently, 21 out of the 21 announced dual-interface biometric payment card market trials use biometrics by Fingerprints

Another positive development for Fingerprints in this space includes a global license agreement with FEITIAN (a leading supplier of two-factor authentication and smart-card-based security solutions) for Fingerprints’ biometric software platform, combined with a volume agreement for sensors. The agreement applies to biometric cards and various types of access devices.

We believe that the current COVID-19 pandemic is likely to accelerate the contactless card’s adoption as businesses and banks will favor more hygienic and secure transactions, a biometric card performs well in this context. According to a Nilson report from October 2018, there are 20.48 billion debit, credit, and other prepaid cards in circulation worldwide. Therefore even a single-digit adoption of biometric cards over the next five years will be a big business opportunity for Fingerprints. However, there is a likely competitor in the form of mobile payments too where adoption has been increasing and heavy smartphone and wearables users are likely to drive this going forward. Mobile payments also lead to lower operational costs and transaction fees for retailers.

Now let us talk about the other opportunity in mobile phones. The smartphone market is the biggest segment for the fingerprint biometrics industry. Strong relationships and partnerships with the smartphone value-chain are essential for fingerprint biometrics players to target this fast-changing market. The penetration of fingerprint-enabled phones in total global smartphone sales reached 70% in 2019. The considerable adoption of the fingerprint sensor in smartphones over facial unlocking, iris scanning, voice, etc is driven by the technology’s sophistication and efficient cost. Fingerprints is already leading in the active capacitive fingerprint sensor solution market for smartphones. The capacitive fingerprint sensor is the preferred solution as it’s a low-cost solution and a mature technology. It contributes to roughly half of the smartphone market which is led by Fingerprints Cards and Goodix. We believe the capacitive sensors will remain dominant in the low-to-mid price segment due to the increasing adoption of biometric security and their low cost which is important of this price segment

Top smartphone OEMs rely on several fingerprint suppliers such as Fingerprint Cards, Goodix, Egis, Qualcomm, etc.

However, we expect the penetration of under-display fingerprint sensors will increase. This also presents a big opportunity for Fingerprints. The trend of achieving bezel-less, full display, foldable and flexible designs is creating demand for under-display fingerprint sensor solutions. In 2019, under-display sensor penetration reached 14%. Optical and ultrasonic fingerprint sensors are suitable options for smartphone OEMs to achieve these designs.

Qualcomm has partnered with Samsung to deliver an ultrasonic fingerprint sensor solutions in its flagship devices. But the adoption of the ultrasonic sensor is low given it’s a new solution with a high cost. However, we believe the optical sensor for under-display designs will exceed ultrasonic adoption, given the cost factor. Several fingerprint solution providers are targeting the optical sensor segment. Fingerprint Cards and Silead are looking to challenge Goodix and Egis which are leading the segment and should provide a good business opportunity.

This was also highlighted in the recent earnings report of Fingerprints where its CEO, Christian Fredrikson said, “We are continuing our work to capture the position in a growing market for under-display sensors. We are now running a few R&D tracks in this area with different time horizons. So far, we have not secured any design wins. But our ambition of capturing a significant share of this market remains. It has taken more time than we initially estimated to enter this market, but we will continue our work, as it is important for us to ensure the high-level of security and quality that Fingerprint is known for before we launch.”

Fingerprints launched its Touchless 2.0 platform late last year by combining iris and facial recognition for a compelling combination of convenience and security. We also believe that as there is an increasing focus on security, especially for personal computing devices, the user will gradually adapt to newer trusted biometric experiences for personal devices.

As the use of biometric solutions increases, Fingerprints is currently looking to broaden its offering by appealing to other market segments, such as smartcards, PCs, automotive, biometrics for access control applications, and other IoT devices. Fingerprints’ strong background in trusted biometrics, along with inhouse IP and testing, and a complete solution in hardware and software, should position it strongly to leverage upcoming market opportunities.

The post Fingerprint Cards: Big Opportunity in Biometric Payment Cards and Under-display Smartphones Sensors appeared first on Counterpoint.

In 2019, OnePlus was the number one premium brand. The first time it managed this for a full year. Its shipments grew 28% YoY and captured one-third of India’s premium segment. Existing users upgrading and the acquisition of new consumers, led by strong word-of-mouth were the main reasons for the growth. OnePlus is continuously listening to users’ feedback and bringing industry-first innovations and features. Customer feedback platforms such as the “OnePlus community” have helped the brand gauge the needs of Indian consumers. Examples of innovations include its adoption of high refresh rate (90Hz), almost bezel-less displays and being first to launch smartphones with Qualcomm’s Snapdragon 855 Series application processor in India.

OnePlus also became the first ever premium smartphone brand to cross two million shipments in a year in 2019. The contribution of OnePlus’s ultra-premium segment (≥₹45,000 or roughly ≥US$634 retail price) to the overall OnePlus portfolio grew to 25% in 2019 driven by the OnePlus 7 Pro.

Samsung dropped to second position and declined 2 percentage points YoY in the premium segment. The Galaxy S10 Plus was the top-selling flagship for Samsung in 2019, despite the availability of cheaper models like Galaxy S10e. As a result, Samsung’s ultra-premium segment shipments grew by 24% YoY and the segment’s contribution to Samsung’s overall premium shipments reached 79% in 2019, compared to 62% in 2018.

The competition from OnePlus and affordable premium offerings from Oppo (Reno Series), Asus (6Z) and Xiaomi (Redmi K20 Pro) took its toll on Samsung. In response, Samsung launched the lite versions of its flagships, Galaxy S10 Lite and Note 10 Lite, for the first time in 2020 to compete in the affordable premium offerings range.

Apple was the fastest growing premium smartphone brand in 2019 with 41% YoY driven by multiple price cuts on iPhone XR throughout the year. Apple iPhone XR was the number one ultra-premium smartphone model in India followed by Samsung’s Galaxy S10 Plus and OnePlus 7 Pro. Additionally, this year Apple saw the fastest rollout of its new iPhones (11 series) in India with aggressive pricing and channel strategy. In fact the new series especially iPhone 11 was introduced at a lower price point than the last year’s iPhone XR launch. This has helped to gain share during the festive season and in its launch quarter in India

We expect the strongest 2020 for Apple in India as it has expanded its production capacity in India and is now manufacturing iPhones on a Completely Knocked Down (CKD) basis. These activities will help the brand to offer competitive pricing in a price-sensitive market like India.

It is becoming challenging to compete in the India premium segment due to the growing number of flagship devices and brands. We are expecting significant growth in the purchase of premium smartphones in 2020 with the Indian market ASP likely to reflect this shift in focus. The growth drivers in 2019, such as price cuts, upgrade plans, EMI offers, etc.,  are expected to continue in 2020 leading more Indian consumers upgrading to premium devices.

The post OnePlus Grabs #1 Position in India’s Premium Smartphone Market For the Full Year appeared first on Counterpoint.

Apple dominates the global handset market by capturing 66% of industry profits and 32% of the overall handset revenue. The loyal premium user base in the major markets like the USA, EU and Japan is one of the reasons that Apple can still operate at a profit level that its competitors can only wish for. Now with a strong service strategy, Apple’s overall ecosystem is strong enough to guarantee it a steady inflow of revenue in the coming years. In the immediate future, we believe that Apple’s profit for the holiday season will increase with the new line up of iPhones gaining good traction.

Samsung is a distant second, taking 17% of the overall handset Industry profits. The increased mix of Galaxy A Series along with the positive start of Galaxy Note 10 Series was the key reason for the growth.

Chinese smartphone brands operate at low-profit margins, but better than in previous years, even though they are expanding outside China and also penetrating high-tier price bands. Chinese brands offer attractive propositions to mature smartphone users with new feature-packed flagships at affordable prices. Some of these Chinese brands are also now looking at monetizing their userbase by launching services like financial services, IoT products and others. However, it is becoming a challenge for Chinese brands to increase their smartphone ASPs and margins due to a combination of longer consumer holding periods and Apple lowering pricing on some key SKUs, which has limited the headroom that Chinese vendors had used to increase their ASPs.

In coming quarters, the adoption of 5G will drive some upgrades. This will likely lead to revenue growth for OEMs which are already preparing themselves ahead of full 5G commercialization. For example in China- Huawei, Oppo, Vivo and Xiaomi will gain from aggressive 5G push and use this opportunity to increase their ASP. While revenue growth is probable, bill of materials (BoM) costs will also tend to rise, so profit margins may not benefit to the same extent,

*This analysis includes normalized (only positive) operating profit.

The post Apple Continues to Lead Global Handset Industry Profit Share appeared first on Counterpoint.

Among the brands, OnePlus (35%) led the premium market segment followed by Samsung (23%) and Apple (22%). OnePlus grew faster (+95%) than the segment (+66%) and remained the fastest-growing brand, driven by strong performances of both the 7 and 7T series. Samsung shipments were helped by the new Galaxy Note 10 series, while the price cut for iPhone XR drove Apple’s shipments. However, the cumulative share of top three brands declined to 79% in Q3 2019 as compared to 83% in Q3 2018, highlighting a growing presence of other brands in the segment, mainly OPPO, Xiaomi, and Asus. More than 20 flagship phone variants launched in Q3 2019, the highest ever in a single quarter.

India is an important market for OnePlus, contributing a quarter of its global shipments.

With the 7T and 7T Pro, OnePlus now has its widest ever portfolio in India. This is helping it target users looking to upgrade at various price tiers within the all-important premium market. Additionally, the aggressive product features and expansion in offline channels, further helped it to attract more users. The OnePlus 7 and OnePlus 7 Pro were the best-selling and third best-selling models during the quarter, respectively. The brand is consistently gaining both mind and market share in India thanks to marketing campaigns focused on connecting with its user community.

Samsung was the second-largest brand in the premium segment during the quarter. Price cuts on older flagships and the launch of the Galaxy Note 10 series, helped Samsung to grow 34% annually. Almost half of the Indian ultra-premium segment (≥₹45,000 or roughly ≥US$636) shipments captured by Samsung were driven by the Galaxy Note 10 series. The initial strong sales uptick of the Note 10 series can be attributed to its multiple variants, giving more choice to the Note series loyalists.

Apple iPhone shipments in the premium segment grew with an impressive 45% YoY. It recorded growth for the last two quarters following a series of quarters with negative growth, since Q4 2017. Apple’s comeback is largely thanks to the iPhone XR which captured half of Apple’s premium shipments in Q3 2019. The price cuts and strong promotions (cash back and EMI) on iPhones helped Apple to perform strongly in the market. The iPhone XR was the second best selling premium smartphone during the quarter. Due to the China-US trade war, Apple is considering India as an alternative manufacturing location and is making efforts to grow through partnerships and investments. This will help Apple in the long run.

To conclude, while India’s premium segment is seeing strong growth the segment is still at a nascent stage, contributing just 5% of the market by volume. This is still low when compared to markets like USA and China, where the premium segment accounts for 50% and 22% respectively. Brands are now increasingly focused on the premium segment to drive both their share and profitability. Additionally, In a price-sensitive market like India, the growth of premium market will depend a lot on how OEMs will strike partnerships to reduce the upfront cost of the devices. EMI have been the preferred method so far.

The post Indian Premium Smartphone Shipments Reached a Record High in Q3 2019; OnePlus Continues to Lead the Segment appeared first on Counterpoint.

India and Indonesia are the most important markets for realme, contributing to more than 80% of its shipments. In India, realme ranked 4th in the smartphone market with 16% share, its highest market share ever, in Q3 2019. Its aggressive online channel strategy helped it achieve this milestone. It was the number one online brand on Flipkart in Q3 2019 and second in the overall online market.

In Indonesia, realme was the fastest brand to reach one million units in Q3 2019 driven by strong sales of realme C2 and realme 3. It is now looking to expand its position in other South East Asian(SEA) markets as well. The brand has expanded rapidly across more than 20 countries.

The core strength of the brand lies in its fast execution. realme has been quick to bring premium features to the budget segment and mass market. For instance, it was among the first few brands to bring features such as quad-cam, 64MP rear camera, water-drop design, pop-up selfie, within the $100-$250 price band. This has resonated well especially among young consumers seeking value for money.

Overall, strong word-of-mouth, social media campaigns and connecting with young consumers has helped the brand grow as well. When it comes to marketing it has focused more on events, such as college festivals, that involve one-to-one connection with its core customers. It has stayed away from big budget marketing events that involve huge marketing spends.

The strong performance of realme shows there still is growth in the market despite the several quarters of negative growth in the global smartphone market. Targeting the right geographical markets, channels and consumers seems to be the winning recipe. The value for money proposition is also powerful in times of stagnant economic growth globally.

The post One brand that’s defying the global smartphone market slowdown: realme shows 800% growth in 3Q 2019 appeared first on Counterpoint.

As more brands such as Xiaomi, OPPO, vivo and Huawei enter this segment, this segment is going to be hyper-competitive in the second half of 2019, great for consumers. Looking at the competitive landscape, the combined share of OnePlus, Samsung and Apple was 85% during the quarter down from 88% level a year ago, signaling this trend.

OnePlus saw a strong uptake of its flagship OnePlus 7-series regaining the top spot back after falling behind Samsung in Q1 2019. OnePlus captured its highest ever shipment share of 43% in this segment widening the gap with Samsung and Apple. OnePlus continues to offer premium flagship features to Indian consumers at affordable prices. Having said that, with multiple model strategy, OnePlus debuted into the ultra-premium segment (≥₹45,000 or roughly ≥US$645) with OnePlus 7 Pro and immediately captured 26% share. This ultra-premium segment is a subset of the overall premium segment and usually led by Samsung and Apple. With healthy sales of Samsung Galaxy S10-series, OnePlus 7 Pro and Apple iPhone XR the volumes in this segment almost doubled.

Samsung dropped to the second position in overall premium-segment holding 22% share with volumes declining 16% YoY. However, promotions for the S10 series remain strong. Galaxy S10 Plus was the top model for Samsung despite the availability of cheaper Galaxy S10e. This shows that India consumers are ready to pay more for a premium experience

Apple’s volumes in this segment doubled annually in Q2 2019 driven by iPhone XR thanks to the price correction in April. Apple is also doubling down on its efforts to localize local manufacturing which will help them save 20% on import duties and can potentially pass on to consumers or use it to build its retail footprint and upcoming festive season discounting/marketing.

As Indian smartphone consumers become more mature and are looking to buy their second or third smartphone, the premium segment is becoming a key battle ground to acquire these premium consumers. The new brands to watch out which could disrupt with premium features with offerings lurking around (≥₹30,000 or roughly ≥US$430) price points are Xiaomi, OPPO, Vivo and Asus lowering the barriers for consumers with aggressive flagship-grade offerings.

The post OnePlus Widens Lead over Apple and Samsung with OnePlus 7 Launch in the Indian Premium Segment in Q2 2019 appeared first on Counterpoint.

Meanwhile, OnePlus dropped to the second position in the premium segment as it underwent its seasonal cycle.  The OnePlus 6T remained the best-selling premium smartphone in Q1 2019, a title it has held since its launch.

The success of Galaxy S10 series and OnePlus 6T highlights the trend of an expanding the premium segment in India. Users, who are buying their second or third smartphone, are already considering an upgrade into the premium segment. Another reason for the growth in the premium segment is a plethora of offers and installment plans available. Almost every new premium smartphone in India comes with an attractive EMI (Easy Monthly Installment), buy-back or trade-in offers, to lure new buyers. This works in a price-conscious market like India, especially for students, where someone else in the family decides the purchase.

The top three premium brands – Samsung, OnePlus and Apple – accounted for 90% of the premium segment shipments in Q1 2019 as compared to 95% in Q1 2018. Other brands like Huawei share the remaining 10% of the segment volumes. Huawei’s Mate and P series entered the market in India recently have been getting good traction from consumers. Apple is still struggling to arrest its decline because of its excessive pricing. It is likely to start mass production of iPhones in India, which will eventually help it to save 20% import duty on its devices. If this saving is passed on to the buyers, Apple is likely to get a bump up in terms of volumes as it remains the most aspirational brand in India.

With an upcoming mid-tier variant of the Pixel, Google has a chance to start things from scratch in some of emerging markets like India where the premium segment is small but growing fast. This can help Google to lock in some first-time users looking for premium features at an affordable price.

We estimate that India’s premium segment will grow by 30% in 2019 due to rising incomes, increasing competition, and high spending power of the consumers.

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Apple, on the other hand, had record revenues and ASPs in 2018. This is despite its unit shipments declining YoY for the first time ever in Q4 2018. Below are some of the key takeaways from the performance of Chinese brands: –

• Pricing Strategy: The ASP of Chinese smartphone brands increased by 14% YoY in 2018. Their 2018 flagships introduced some new features like punch-hole display, ultrasonic in-display fingerprint sensor, super-fast charging, and hardware-based AI capabilities to target the maturing smartphone user base. Additionally, Chinese smartphone brands were aggressive in terms of promotions including upgrade offers, trade-ins, and cashbacks.
• Market-specific competitive portfolio: Chinese brands have a good track record of sensing the market trend faster than the competitors. They are delivering world-class competitive products across different price bands, giving consumers enough alternatives for an upgrade. For example, Chinese brands are preferring Huawei Mate series over super expensive iPhones. Xiaomi and OPPO launched new smartphone brands Pocophone and Realme respectively, in the Indian market. The ability to leverage deeper access to the Shenzhen-based manufacturing and supply chain ecosystem is helping Chinese brands to plan their product portfolio much earlier. It also helps them to maintain profit margins across price segments.
• Global expansion and growth: Chinese brands are dominating the Chinese smartphone market. However, this is now saturated and driven by replacement users. For growth in 2019, Chinese OEMs are eyeing overseas markets. Huawei and HONOR expanded in markets such as Indonesia, Vietnam, Argentina and Peru with new launches priced higher than previous variants. OPPO entered the European market.

As the premium market expands in 2019, we believe Chinese brands will have a good chance of improving their profits. Targeting replacement buyers with flagships priced at the right levels will help them succeed.

The post Combined Profits of Chinese Smartphone Brands Grew at 24% YoY in 2018 appeared first on Counterpoint.

Affordable premium model remained popular skewing the premium segment towards ₹30,000-₹40,000 segment in 2018            

According to Counterpoint Research’s latest analysis on the Indian smartphone market, premium smartphone segment (≥₹30,000/US$400, Retail Price) shipments reached its highest ever in a quarter (Q4 2018) and a year (2018). The overall premium segment grew by 8% YoY for the full year 2018 and 16% YoY for Q4 2018.

Market Analysis:

• The top three brands, OnePlus, Apple and Samsung contributed to 92% of the overall premium market in Q4 2018.
• OnePlus recorded its highest ever shipments in a single quarter (Q4 2018) to lead premium smartphone segment for three successive quarters capturing 36% market share.
• This was driven by strong demand of its latest OnePlus 6T during Diwali festive season. The momentum continues even after festive season due to strong word of mouth and product feedback from the end users. Its latest expansion into offline space along with experience stores will help it to reach potential user base in coming quarters.
• Samsung captured 26% share of the premium segment and its shipments grew 72% YoY in Q4 2018. The newly launched Galaxy A9, world’s first quad rear camera phone, in ₹30,000-₹40,000 price segment attributed towards Samsung’s growth, which is in direct competition with OnePlus.
• However, Samsung led the premium market for the full year 2018 in terms of shipments, narrowly inching ahead of OnePlus. OnePlus led the premium market for the full year 2018 in terms of sell through

• Apple’s premium segment shipments declined 25% YoY in Q4 2018 mainly due to extreme high-premium-commanding pricing for iPhones as Apple continues to choose to pay 20% import duty on new imported iPhones instead of manufacturing in India.
• As a result, we believe Apple to start manufacturing locally for latest iPhones in 2019 and beyond to potentially lower the current higher iPhone pricing.
• Competition for Apple will increase in 2019 with the entry of Android premium offerings by Chinese brands including Huawei and aggressive sales and distribution strategy from OnePlus, Samsung, Huawei and Google.
• The premium price band has expanded to ₹30,000-₹145,000, as a result, differentiation among premium smartphones has become more essential.
• We will see in this year most flagship phones to innovate on hardware by adding 5G and multi-gigabit capabilities, unibody button-less design with advance biometrics, Xtended Reality (XR) and gaming. We will see most of the popular features from last year such as multi-camera configuration, AI and notch display trickle down to below ₹30,000 segment.

Source: Counterpoint Research Monthly India Market Analysis December 2018

• OnePlus 6 was the best-selling premium model throughout 2018 in terms of shipment as well as in retail value.
• OnePlus 6T was positioned at second place followed by Samsung S9 Plus.

The post Samsung Led the India Premium Market for 2018, OnePlus Led Q4 2018 appeared first on Counterpoint.

Chinese brands are planning on to entering new price tiers in the premium segment. Brands like OPPO, vivo and Huawei have tweaked their design language by adding new features, at a time when overall innovation within smartphones was already reaching its peak. Examples include the vivo Nex (Ultra Full View Display with in-display fingerprint), OPPO Find X (Ultra Full View Display) and Huawei’s P20 Pro (Triple camera).

We expect the average selling price of smartphones will further increase, driven by developed markets. However, smartphone volumes are likely to be flat as consumers are now keeping smartphones for longer. This will have implications for OEMs’ revenue as OEMs are looking to maximize their profits by increasing their average selling price and entering new price tiers. Only vertical integrated companies, in such a scenario, are well poised to capture the trends.

Apple remains the most profitable smartphone brand.  iPhone X, which drove a new design language, helped Apple command a significantly higher Average Selling Price (ASP) during the second quarter, at a point when the overall smartphone market was beginning to saturate.

Market Summary – Q2 2018

• Global handset profit grew 4% annually, capturing 11% of the total handset industry revenue in Q2 2018.
• Apple was the most profitable brand in Q2 2018 with 62% market share followed by Samsung 17% and Chinese brands: Huawei (8%), OPPO (5%), vivo (4%) and Xiaomi (3%) were the key Chinese players which grew during the quarter.
• The remaining 1% of total industry profit was distributed among more than 600+ handset brands.
• Samsung’s profit declined 21% annually due to weaker than expected sales of the Galaxy S9 series. The Galaxy S9 series shipments declined 24% in Q2 2018 as compared to Galaxy S8 series in Q2 2017.
• Xiaomi (747%), Huawei (107%), vivo (24%) and OPPO (23%) were the fastest growing smartphone brands in terms of handset profits during Q2 2018.
  

  Chinese brands crossed the US$ 2 billion mark for the first time. Chinese brands kept on introducing flagships with cutting-edge features and futuristic designs throughout the year. These are driving sales and increasing profit margins for them.

The comprehensive and in-depth Q2 2018 handset profit share analysis is available for subscribing clients. The methodology involves insights from supply chain interviews and our Bill of Materials (BOM) tracker. Feel free to reach out to us at press@counterpointresearch.com for further questions regarding our in-depth latest research, insights or press enquiries.

The post Chinese Brands Handset Profit Crossed US$ 2 Billion For the First Time Ever in Q2 2018 appeared first on Counterpoint.

Market Summary:

• The premium smartphone market contributes to 4% of the overall smartphone market in India, still in the nascent stages as the overall smartphone user base is still less mature.
• The top three brands Samsung, OnePlus and Apple contributed to 95% of the overall premium
• Samsung captured half of the premium segment with 16% YoY growth, driven by strong initial demand of its new flagships S9, S9 Plus and online exclusive Galaxy A8 plus.
• S9 series promotions were strong both in offline and online channels with offers ranging from cashback (~$100), exchange (~$150), upgrade & data bundling plans across all major operators.

• OnePlus was the fastest growing brand (+192%) in the segment capturing 25% of the share.
• OnePlus has been maintaining its second spot in the premium segment which it is has been holding since Q3 2017. OnePlus 5T was the best-selling model during the quarter, driven by its limited edition variant launch and expansion in the offline segment.
• The highly anticipated OnePlus 6, is likely to cash in on the momentum built by the OnePlus 5T. This year, the brand will expand its presence across multiple cities by opening new stores, enabling it to reach out to a larger user base.
• Apple’s share in the premium segment dipped as the volumes dipped by a massive 55% due to decline in shipments for its iPhone 8 and X series. Additionally, the increase in import duty on CBUs to 20% during the quarter, led to increase in prices of already expensive iPhones.
• However, the silver lining for the company was its growing presence in the online channel. Currently, almost one in four premium iPhones are sold in the online channel.
• Online promotions for the older iPhone generation remains strong on both Amazon and Flipkart. Cashback was a popular promotional scheme for older generation iPhones. E-commerce players were promoting “Apple days” in a bid to lure buyers with upgrade and cash back programmes.

Source: Counterpoint Research Monthly India Market Analysis March 18

• Cashback and EMI offers were the major promotional activities leveraged by brands in the premium segment, with cashback being used by 9 out of 10 models in the premium segment in online.
• Other notable brands which have their presence in the premium segment include Google, Xiaomi, LG and new entrants in Q2 2018 to keep an eye on are Huawei with P20 Pro and Nokia HMD with Nokia 8 Sirocco.

The post India Premium Segment Q1 2018 : Samsung Regains the Top Spot, OnePlus 5T was the Best-Selling Model appeared first on Counterpoint.

India’s overall online smartphone shipments grew 23% annually, faster than the overall smartphone market in CY 2017. Seasonal sales events, aggressive promotions and value for money offerings from Chinese brands drove the demand for the online channel.

The high-spec but low-cost, value for money smartphone models exclusively available only on online platforms were instrumental in successfully creating unprecedented demand throughout the year. The demand for such models was felt not only in online but offline channels as well due to walk-in customers asking for attractive models such as the Redmi Note 4. This has sparked an obvious channel extension strategy move to expand offline and capture the pent-up demand which is helping vendors such as Xiaomi which are able to offer such attractive models. In 2018, many brands will learn from Xiaomi’s growth from online to offline and will try to replicate a similar strategy.”

Online channel contributes to more than one third of the total smartphones shipped in India during the year, which is the highest in the world. Flipkart led the online smartphone channel capturing more than half of the market in both volume and value terms maintaining its lead with Amazon. However, Amazon also able to grow share capturing almost one third of the market in volume and value terms. Indian online channel market has become a duopoly with Flipkart and Amazon capturing a combined 84% of the total volume and 87% of the total value.

Together Flipkart and Amazon were able to attract a lot of brands and consumers on their platforms by launching close to 100 exclusive model SKUs throughout the year. However, these platforms will have to adopt multiple strategies from increasing number of serviceable ZIP codes, hybrid offline stores and customer service kiosks to attract and gain more users to the platform.

Exhibit 1: India Online Smartphone Shipment Market Share by Platforms CY 2017

Source: Counterpoint Research Market Monitor CY 2017

Exhibit 2: India Online Smartphone Shipment Market Share by Brands CY 2017

Source: Counterpoint Research Market Monitor CY 2017

*Lenovo Includes Motorola

Market Summary:

• Indian online smartphone market shipments contributed to more than one third of total smartphones during CY2017 and grew by 23% annually. Online sale events like “Flipkart’s Big Billion” and “Amazon’s Great Indian Sale”, promotions and offers drove the market.
• We estimate that share of online channel continues to remain flat in 2018 as brands are adopting hybrid channel (Online+Offline) strategy to extend their reach throughout the country.
• More than half of the online smartphone channel volumes as well as value were dominated by Flipkart in 2017, followed by Amazon and Mi.com. Online exclusive smartphones were the main contributors to online sale.
• Flipkart and Amazon smartphone volume grew by 43% and 33%
• Amazon contributed 63% to online smartphone premium segment shipments in CY 2017 driven by sales of Oneplus and Apple.  Flipkart’s contributed to 31% of online smartphone premium segment.
• Paytm witnessed modest growth in 2017, most of this coming from the huge discounts offered on high-ASP smartphones like iPhone. Paytm has its work cut out for 2018 and needs to strike exclusive launches and partnerships as offering discounts might not be a sustainable long-term strategy.
• Top three online smartphone brands contributed to 75% of the online smartphone market.
• Xiaomi, Lenovo and Samsung were the top 3 brands on Flipkart as well as Amazon.
• Xiaomi, popular with name of Mi among users, led the online smartphone market with 44% share mainly due to its value for money offerings. Redmi Note 4, Redmi 4,4A were the top volume and value driver for the Chinese brand.
• This is helped Xiaomi to make a strong comeback and dominate the Indian market (more here) In 2017 after slowdown in 2015 and early 2016.
• The budget segment portfolio from Motorola Moto C and E and mid-segment Moto G helped Lenovo to maintain its second position.
• The world’s third largest (more here) and China’s leading brand (more here), Huawei regained focus in this important market, pivoting back to online segment with its Honor brand after scaling back its offline segment strategy from late 2016/early 2017. Models such as Honor 9 lite, 7X and View 10 Pro will help Huawei gain some share this year.
• Micromax is the only Indian brand which is present among the top five ranking driven by Canvas Infinity sales.
• Xiaomi, Huawei and Apple were the fastest growing brands in the online segment with 219%, 126% and 105% annually in 2017.
• Online smartphone market ASP was ₹11,500 growing 10% annually and is 5% higher than offline channel.
• Close to 100 exclusive smartphones were launched on online platforms in 2017. Smartphone brands are also launching special edition smartphones like specific color variants.
• Online-only brands are now expanding to offline for growth. Xiaomi is expanding its reach with Mi preferred partners, Mi homes while Motorola is expanding with Moto Hubs.

Exhibit 3: India Online Smartphone Revenue Market Share by Brands CY 2017

Source: Counterpoint Research Market Monitor CY 2017

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Exhibit 1: Indian Smartphone Premium Segment by Brands Share – Q3 2017

• Most of the growth for OnePlus came from attracting Android users (which is 97% of the market) away from Samsung with a stronger alternate high-spec well-built Android alternative offering.
• Apple still held a strong play in the premium segment leading with 35% share almost flat annually though down from its peak of 59% in the holiday season quarter of 2016.
• We are seeing a significant shift from users who use to buy between ₹15,000-₹30,000 segment preferring to spend above ₹30,000 for a premium spec but affordable devices such as OnePlus 5 or older generation iPhones.
• Samsung was slightly behind OnePlus capturing the third spot with some popularity of Galaxy S8 series which were unique in terms of its gorgeous Super-AMOLED curved 18:9 full display.
• In coming quarters, however, will witness a number of flagships with 18:9 display from competition including iPhone X which will challenge Samsung further in the premium segment.
• Premium segment though contributes to just 3% of the total smartphone shipments in India but contributes to 13% of the total shipment revenues is important for any brand to create a halo-effect to drive the entire portfolio.
• Further, in a mobile-first country like India, bulk of the 350 million smartphone users will be upgrading to their third or fourth smartphone and thus the demand has been shifting to higher price bands and we believe ₹30,000+ smartphones demand will also continue to rise.
• Xiaomi & Google will be other two brands to watch out for battling in the premium segment Mi Mix 2 and Pixel series respectively.
  

  Exhibit 2: Indian Smartphone Premium Segment: Best Selling Models – Q3 2017

  

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In terms of performance during the quarter, Smartphone shipments in India grew by 18% YoY while featurephone shipments declined by 4% YoY. Bulk of the growth was driven by online channels such as Flipkart’s Big Billion sale and Amazon’s Great Indian festival in September. Offline players also contributed to some of the shipment growth filling the channel ahead of Diwali. As a result, fourth quarter will be crucial for offline players as they need to streamline their inventory levels which they have accumulated ahead of Diwali. We expect discounts and offers to run even post Diwali.

India continues to be an attractive destination for handset OEMs. With strong smartphone growth and a sizeable featurephone market for at least three to four years, OEMs in India can target a diverse set of audiences. This has allowed a number of OEM’s to still realize double-digit growth in the featurephone segment in spite of being absent in the smartphone segment.

Samsung and Xiaomi together contributed to almost 45% of the smartphone market. This is the first time since 2012, that the top two brands have reached this level of combined share, signaling that key brands are ramping up their presence in India. Additionally, the quarter was marked with return to growth for local handset players such as Micromax and Lava in the smartphone segment.

There’s no denying that Xiaomi has made deep inroads in the smartphone market in India. Xiaomi’s market share increased from 6.3% to 22% YoY during Q3 2017 with over 300% growth. Hence, considering Xiaomi’s growth trajectory – it is highly probable for Xiaomi to become the market leader if Samsung doesn’t come up with a strategy to counter Xiaomi’s growth especially in the online segment.

Samsung has been a trusted smartphone brand in India over the years. It still enjoys the wider distribution network when compared to any brand in the market. However, with the entry of new brands in India over the past few years, users have been lured into trying spec-heavy alternative devices with a strong value for money proposition. As a result of which, its brand pull, in $150-$250 price band got diluted to a certain extent. Having said that, on a volume basis, Samsung is not declining YoY in India, in fact, the major concern for Samsung is that it is not growing with the same pace as the market. A larger chunk of replacement demand in mid-segment is captured by players like Xiaomi, OPPO, Vivo and others.

Xiaomi has been successful in luring Indian consumers through its smart marketing, aggressive devices and strong focus on online channels. No other brand is close to Xiaomi as far as online sales are concerned, where it dominates almost half of the market. Online consumers are known to be smart consumers who usually compare products at different levels before making a purchase decision. Xiaomi was smart enough to hit the sweet spot by offering the best deals at cost-sensitive price bands that drive the volume sales. Xiaomi Redmi Note 4, Redmi 4 and Redmi 4A were the top smartphone models in Q3 2017 with highest shipments targeting $150-$250 and $90-$125 price band.  In case of Samsung, Galaxy J2 and J7 have been their key offerings in the same price band. There is a significant difference in smartphone specifications between the key offerings within these price bands. Hence, Samsung must come up with a different value proposition within these price bands to regain the attention of Indian consumers as the mid-segment is the fastest growing smartphone segment in India.

It has been almost a year since Reliance Jio launched its 4G LTE network officially, which drove an inflection point for mobile data consumption as well as demand for 4G capable phones. Within a year, Jio attracted more than 100 million subscribers to its network and now is targeting the next 100 million subscribers by bringing the first ever LTE featurephone to the market. This has changed the dynamic of the Indian mobile market where OEMs and operators are partnering to launch affordable 4G bundled offerings. It will all boil down to how attractive the bundled value proposition is, keeping in mind the effectiveness of Total Cost of Ownership.

India Smartphone and Featurephone Shipments Market Share in Q3 2017

• India mobile handset and smartphone market grew by 6% & 18% YoY driven by strong pre-Diwali shipments.
• Featurephone segment declined 4% YoY but grew 22% QoQ driven by sub-USD15 (INR1,000) devices as well as entry of Jiophone and Nokia branded phones in the market during the quarter.
• Chinese brands performance remained strong and contributed to more than half of the total smartphone shipments. It is their third consecutive quarter when their market share is well over 50% after they took over local players in 2H 2016.
• However, local brands like Micromax and Lava grew 41% and 24% QoQ in the smartphone segment recovering from their all-time low during demonetization last year. Micromax Bharat 2 was the bestselling model in the sub $75 segment.
• Xiaomi, iTel, Oppo, Vivo & OnePlus were the fastest growing smartphone brands during the quarter.
• Three out of four mobile handsets shipped were “Made in India” during Q3 2017. As the number of assembly units has crossed the 100 factories landmark, Government through its phased manufacturing program will look forward to an increased contribution of mobile ecosystem players to increase local value addition currently pegged at a low 5.6%. For this, an introduction of SMT lines by players will be crucial in the short term, further catalyzing the growth of number of factories and component ecosystem.
• LTE capable smartphones contributed to 97% of smartphone shipments in Q3 2017. However, in terms of installed base almost 40% smartphones are still only 3G or 2G capable signaling a faster upgrade cycle.
• Affordable mid-end segment (₹10,000-₹15,000 or US$150-$230) was the fastest growing segment driven by strong performance of Xiaomi, the Chinese vendor, contributing to almost half of the shipments.
• Premium segment (>₹30,000, US$465) grew record 3X YoY during Q3 2017 due to the strong performance of Apple, OnePlus & Samsung which grew the overall size of the premium segment
• Qualcomm was the leader among smartphone chipset suppliers. Qualcomm powered smartphones grew a healthy 73% YoY in Q3 2017. The demand of Qualcomm chipsets in the mid segment was driven by Chinese brands as they continue to be the key reason for growth.

Xiaomi continues to post back to back record quarters in India and create new benchmarks. Three out of the top five bestselling smartphones in India were from Xiaomi alone. Xiaomi has been popular in the past for its “value for money offerings”, however, the popularity is now transitioning into performance compared to last year. This can be attributed to a streamlined supply chain effort by Xiaomi and relatively weaker offerings from competitors in the online channel.

Samsung continues to dominate the segment in spite of pulling out of the featurephone segment elsewhere, highlighting the importance of catering to the huge base of Indian featurephone users. However, we also witnessed the strong entry of Nokia branded featurephone with Nokia 105 becoming one of top selling models during the quarter. Entry of the much awaited Jiophone also propelled it to the top five bestselling featurephones.

India Top Models Q3 2017

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Exhibit 1: Global Handset Profit Share Q2 2017

• Apple dominated the global profit share, holding 65% of the pie with just 9% of the total handset shipments during Q2 2017.
• Samsung has regained profitability and reputation over the past few quarters, after the Note 7 debacle with the help of its new Galaxy S8 series flagship. The Galaxy S8 and S8 Plus are gaining attention amongst users with their Infinity display, beautiful design and virtual assistant Bixby. However, the major shift in sales towards mid-tier models has caused Samsung’s profits to decline almost 30% YoY
• The profit of Huawei, OPPO & vivo combined crossed a billion-dollar mark growing a healthy 43% YoY during the quarter. The Chinese brands are growing fast when compared to industry leaders due to their high-quality offerings at competitive prices with attractive designs and innovative features. Aggressive marketing campaigns and strong promotions have helped them further.
• Asian region has been the linchpin for the growth for this trio, however, expanding beyond Asia markets will definitely put significant pressure on their operating margins in near- to mid-term

Exhibit 2: Premium Segment Contribution to Individual OEMs Profit Share (%)

• Premium segment (>US$400 wholesale price) contributed to almost 80% of the global handset profit during Q2 2017
• Apple dominated the premium segment where profit margins are high as most of its profits comes from above US$400 models.
• We estimate that the Apple iPhone X will further increase profits for the iPhone maker in the premium segment and overall to record levels
• Within its individual portfolio, for Samsung, US$400+ segment contributes to almost two-thirds of the total Samsung profits
• The following exhibit 3 represents the comparison of wholesale average selling price (ASP) of Apple and Samsung with the industry average across different regions.
• It’s very important to analyze the mix of portfolio and focus of these two leading profit makers by regions. Thus, how they are aligned to generate significant profits out of these individual markets, contributing towards their global profit coffers
• The average selling price for iPhones in developed regions is approximately 150% higher as compared to the regional industry ASP whereas in developing regions it can go as high as 650% compared to the overall industry ASP in that region
• This underlines the huge global price differential the iPhones have with respect to competitors and “premium brand equity” it tries to cash in on
• Samsung, on the other hand, has a mix of products across different price bands that help the brand maintain an ASP that does not hugely vary from the regional ASP. This in turn helps the brand move more units or revenues due to the various price differentials but not profits

Exhibit 3: Average selling price comparison by region for Apple & Samsung

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Next 150 Million users are estimated to take half the time as VoLTE feature phones will be bringing LTE to lower price points. For Q2 2017, smartphone shipments grew a modest 4% YoY thanks to GST and featurephone demand remains solid.

LTE installed base of handsets crossed 150 million units only behind China and USA now and is estimated to surpass the USA in next one year.

In terms of performance during the quarter, Smartphone shipments in India grew by modest 4% YoY in Q2 2017. Like China, the top five brands contributed to almost 70% of the total smartphone market. Although local brands grew during the quarter but are still unable to find their place among the top five smartphone players in third successive quarter.

Local brands did relatively well during the quarter after three quarters of lull but still have a significant task cut out to reclaim the market share back from rivals. Then again, Chinese players such as OPPO, vivo and Gionee continued to outspend their rivals during the quarter especially riding high on the IPL and Champions Trophy cricket tournaments. These brands also benefitted from a refreshed portfolio in the important ₹10K-20K segment

Second quarter of the year normally sees an uptick in promotions and advertisement spend by the OEMs due to sporting events like IPL and cricketing events along with new seasons of TV shows. However, this time the promotions were extended both in offline and online channels as brands tried to clear the inventory ahead of GST (Goods and Services Tax) implementation from 1st of July.

While GST remained the key talking points during the quarter as the growing domestic EMS (Electronics manufacturing services) players were also worried about the impact of GST on local manufacturing as all previous incentives were supposed to subside under new regime. This was later addressed with the implementation of 10% Basic Customs duty on imported mobile phones and certain components by the government.

Although, shipments were impacted in anticipation of GST roll-out especially in June, retailers were quite hesitant in adding new stock into the channels during the last month even though there was some assurance from the OEMs to support pre-GST channel inventory clearance. Going forward, we estimate the market to jump back to double digit growth ahead of a festive season in 2H 2017.

Exhibit 1: India Handset Shipments Market Share in Q2 2017

Source: Counterpoint Research Market Monitor Q2 2017

               *Lenovo Includes Motorola

Market Summary:

India mobile handset market remained flat while smartphone market grew by modest 4% YoY during Q2 2017

• Smartphone segment contributed to close to half of the total handset market in Q2 2017.
• Featurephone segment still holding strong in India and now with the announcement of LTE based smart featurephone “JioPhone” by Reliance Jio, we estimate that conversion from featurephones to smartphones is likely to slow down in short to mid-term.
•  Chinese brands performance remained strong and now contributing to more than half of the total smartphone shipments. It is their second successive quarter when their market share is well over 50% after they took over local players in 2H 2016.
• Xiaomi, Vivo, Oppo and Gionee were the fastest growing smartphone brands with strong offline push and advertising Blitz-Krieg.
• Four out of five mobile handsets shipped were “Made in India” during Q2 2017. Goverment also introduced phased manufacturing program during the quarter to increase the local value addition which is currently pegged at a low 5.6%.
• LTE capable smartphones contributed to 96% of smartphone shipments in Q2 2017. However, in terms of installed base almost half of the smartphones are still only 3G or 2G capable.
• This will accelerate the upgrade cycle of smartphones in short term as LTE coverage from most of the operators has expanded in the past one year.
• Mid end segment (₹15,000-₹20,000 or US$235-$310) remains the fastest growing segment in second successive quarter there by increasing the average selling price of overall smartphone market by 16% YoY. Oppo, vivo and Samsung were the leading smartphone brands in this segment.
• Premium segment (>₹30,000, US$465) remained flat QoQ during Q2 2017. Samsung retained the top position with 55% market share, followed by Apple at 30% market share. OnePlus, OPPO and Sony were the other players in this segment. Samsung grew 13% QoQ in premium segment due to healthy demand for its flagship S8 series.
• The smartphones with 2GB RAM and 16GB internal memory contributed one fourth of the total smartphones shipped during Q2 2017. As memory remains the top requested feature among Indian consumers.
• Qualcomm powered smartphones grew a healthy 40% YoY in Q2 2017. The demand for Qualcomm chipsets in mid segment by Chinese brands was the key reason for growth.
• Smartphone segment in value terms grew 25% YoY due to increasing smartphone ASP was driven by mature users.

Xiaomi’s comeback can be attributed to strong demand for its sub-₹10K portfolio, making the Redmi Note 4 the top-selling model in the first half of 2017. This is the first time any brand has been able to topple Samsung which has held the best-seller slot for its models over the last four years due to its enormous reach and scale!

Exhibit 2: India Top Smartphone Models Q2 2017

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Table of Contents:

• Pivot Chart
• India OEM data 2016Q4
• ODM Mapping – By Brand – By Model

Number of Pages: 3 (Full report is available for clients at our portal)
Author: Karn Chauhan (analyst@counterpointresearch.com)
Published Date: February 2017

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