Component supply constraints may push up phone prices, impact new launches: Industry experts

Trends like remote work and study-from-home during the COVID pandemic have led to an explosive growth in semiconductor demand that has placed a huge strain on global supply chains

September 14, 2021 11:03 pm | Updated 11:03 pm IST - New Delhi

China accounts for a major chunk of the components supplied for use in electronic goods in India.

China accounts for a major chunk of the components supplied for use in electronic goods in India.

Festive season this year is likely to see fewer launches by smartphone companies and prices of existing devices could rise by 7-10% as players are grappling with severe shortage of components, including semiconductor chips, according to industry experts.

Trends like remote work and study-from-home during the COVID pandemic have led to an explosive growth in semiconductor demand that has placed a huge strain on global supply chains around the world. Freight costs in China have also gone up significantly, putting greater stress on device makers.

China accounts for a major chunk of the components supplied for use in electronic goods in the country.

According to Counterpoint Research Director Tarun Pathak, the shortage situation will continue to impact the mobile phone industry for the next couple of quarters.

"The all-important festive season will be impacted in multiple ways like delayed or fewer new launches, an increase in pricing by 7-10% for existing devices, and fewer offers. However, demand is likely to stay strong this festive season. Amongst the chip shortage, the 4G chipsets are impacted and this is likely to stay till H2 2021," he added.

Mr. Pathak emphasised that demand is likely to stay strong this festive season despite these challenges.

While the 5G chipsets situation is relatively better with the premium 5G chipsets crunch easing in the second half of this year, the mainstream (mass market) 5G chipsets will be in short supply.

Kanishka Chauhan, Principal Analyst at Gartner, explained that India has a heavy dependence on international foundries in the absence of fabrication facilities (for chip manufacturing) in the country. While orders from the smartphone industry are prioritised over other segments by fabrication facilities given the high volume, that prioritisation has also not protected the industry completely, he said.

"While on one side, the rising chip prices because of the shortage has significantly impacted the bill of materials for smartphone manufacturers, which is now trickling down to the consumers. On the other end, it is also impacting new product introduction plans," he told PTI.

He cited the example of Reliance Jio's recent postponement of its 4G smartphone launch due to chip shortage.

"Not just Reliance, many other manufacturers faced similar hardships because of the chip shortage issue. There is no quick solution to the problem and we expect the shortage situation to remain for the next few quarters," he said.

Further, Mr. Chauhan noted that the recent container shortage, fresh COVID lockdowns in some Asian countries, and double booking from customers are making the situation more difficult.

"Along with other chips, Display Drivers (DDI) and Power Management IC (PMIC) are two of the chips which are extremely critical for the smartphone industry and are under a significant shortage," he highlighted.

According to India Cellular and Electronics Association (ICEA) Chairman Pankaj Mohindroo, the global digital products (primarily smartphones, tablets and laptops) markets have consolidated with a few brands, which are large players with deep supply chain arrangements and pockets.

"Primarily, volumes rest with them and their supply position is comfortable, except for localised issues e.g. Vietnam facing some factory closures because of COVID. Their semiconductor supplies are not affected. Indian mobile brands and new entrants are facing serious challenges," he highlighted.

Smartphone shipment in India grew by 82% in the June 2021 quarter from the year-ago period to over 33 million units with Xiaomi (including POCO) accounting for 28.4% share, followed by Samsung (17.7%), Vivo (15.1%), Realme (14.6%) and Oppo (10.4%), as per data from research firm Counterpoint.

A Xiaomi spokesperson said that with the pandemic peaking at different times across the globe, there have been disruptions and shortages across the supply chain over the last 1.5 years.

"This, coupled with an unprecedented increase in shipping costs, has affected almost all the smartphone players, including us. Due to massive demand-supply mismatch, the majority of components used in smartphones and other electronic gadgets (chipsets, display panels, display driver, back panels, battery, etc.) have seen constant upward movement in their prices," the spokesperson said.

Besides, the spokesperson said that to ensure there are no supply challenges during the festive period, the company has been working towards ramping its local manufacturing capabilities and exuded confidence that the festive period will be a great success.

Realme Vice President and India and Europe Chief Executive Officer Madhav Sheth said chip shortage has been a challenging issue for the smartphone industry and it may prove difficult for some brands to meet the pent-up demand during the festive season.

"Talking about the price impact, the component costs have increased in the past few quarters. The industry has tried its best to absorb the pricing but finally everyone has to increase market operating prices of a few products to maintain sustainability, since none of the brands, including Realme, can absorb it all,” he said.

Sheth noted that as production and distribution facilities open up and expand operations gradually, he anticipates that the chipset shortage will ease only after the second quarter of 2022.

On steps being taken to address these challenges, Sheth said India is a highly focused market for the company and it had sensed such shortage long time back and has taken necessary steps to ensure it faces no shortage of supply.

"We are working proactively with mainstream chipset makers to stay ahead of the curve with new and powerful 5G processors. We are also exploring our collaborations with burgeoning chipset manufacturers who can provide the best value processors without compromising performance at its price segment.

"Realme India had already pre-empted the situation and is ready with new launches to meet festive demand efficiently," he said.

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