Growing demand in emerging markets such as India and China is acting as the main catalyst in driving down the average sale prices of smartphones. According to a report by the International Data Corporation (IDC) Worldwide Quarterly Mobile Phone Tracker, smartphone average selling prices have dropped to $372 (around Rs 20,993) in 2013, mostly owing to high demand from emerging markets. The average sale prices for smartphones in 2013 fell by $35 from $407 (about Rs 22,969) in 2012 and $443 (roughly Rs 25,000) in 2011. What’s more, smartphone average selling prices are further expected to drop to $309 (Rs 17,438) by 2017.
It’s safe to say low-cost Android smartphone manufacturers are one of the main reasons for this change. If you look at the market in India, players like Micromax, Karbonn, WickedLeak and Lava currently offer a plethora of smartphones under the $350 (about Rs 20,000) price point. In fact, a lot of the newer phones available today from such manufacturers have decent specifications—you can get a phone with a quad-core processor, 8 megapixel optics, a large screen, 1GB of RAM and a microSD card slot, all for less than $300 (Rs 15,000).
Average smartphone costs down to a new low
One way in which vendors in emerging markets have managed to keep costs down is by building their products on top of low-cost SoCs offered by companies such as MediaTek. Look closely and you’ll notice almost all of the low-cost smartphones available in India or China run a Cortex-A9 or Cortex-A7 SoC by MediaTek and offer similar processing ability. The manufacturers differentiate their offerings by manipulating the looks, adding software tweaks, upgrading the Android version or improving the optics.
Outsourcing the manufacturing process to larger companies also helps local players offer products without having to set up a separate manufacturing division; all they have to do is assemble the imported parts. This results in cost savings, which enables a company to sell smartphones at a low cost while still enjoying profit margins.
Using older radio components has proven to be an easy cost-cutting measure for handset OEMs in the smartphone space. The IDC report states that 3G-enabled smartphones will account for 70.9 percent of all smartphones shipped in 2013, and 50.1 percent of smartphones shipped in 2017. This is a clear indication that a “good enough” computing experience is suitable for many, especially when it comes to cost trade-offs.
Another reason for low-cost smartphones doing so well in emerging markets might be that smartphones are today the most affordable way of computing in these markets. You can buy a really good smartphone that will let you do virtually anything you want for around $350 (Rs 20,000), but you can’t really get a great laptop for that price.
The low average income coupled with the high demand for smartphone computing experiences at a low cost in emerging markets are driving down smartphone average sales prices at a high rate. You only have to look at the drop since 2011 to figure that out. Going by the frequency with which OEMs are releasing low-cost smartphones—we see a new phone being announced almost once a week—we won’t be surprised if smartphone average selling prices fall to 2017’s predicted figure within the next couple of years.