Apple Inc. (AAPL) and Samsung Electronics Co. (005930) are being beaten in the fast-growing Indian smartphone market by a couple of aggressive local competitors.
In a country where about 800 million people live on less than $2 a day, Karbonn handsets start from 3,599 rupees ($66) and Micromax’s from 3,999 rupees, less than the cheapest Apple and Samsung smartphones. The iPhone 4 is available for 26,500 rupees and Samsung’s Galaxy Y Duos Lite for 6,110 rupees.
“India is poised for a smartphone boom; just look at the Internet penetration and potential,” Deepak Mehrotra, chief executive officer of Gurgaon-based Micromax, said in an interview. “But we don’t see any point to offering a Ferrari.”
India will become the third-largest smartphone market by 2017, according to the Framingham, Massachusetts-based researcher IDC, after China and the U.S. Samsung (005930), based in Suwon, South Korea, remained No. 1 by unit shipments in the December quarter and Cupertino, California-based Apple (AAPL) was sixth after shipping 254,000 iPhones, according to IDC.
Micromax, which ranked second by shipments, and fifth- placed Karbonn are growing faster, according to IDC. Micromax increased shipments to 633,000 smartphones in the last quarter of 2012 from 9,990 a year earlier, while Karbonn grew to 304,000 from zero, according to Gurgaon-based Consumer Media Research. Karbonn introduced smartphones in April 2012, said Shashin Devsare, executive director at the handset seller.
Subsidized DataKarbonn subsidizes monthly data packages for some users carrying their phones, contrary to the global model of offering discounted devices to lure subscribers into signing annual service contracts, according to Devsare.
The two Indian mobile-phone sellers are both doing so well that they have considered going public, though they have put off a decision for now.
Mehrotra said he hopes Micromax (MICRO) will topple Samsung as India’s top smartphone vendor by March 2014. Karbonn has set a target of selling 5 million smartphones in the fiscal year that started April 1. Samsung is on track to sell more than 8 million smartphones in 2013, according to Consumer Media Research.
“The scale of the Indian smartphone market is growing by leaps and bounds with increased affordability,” said Manasi Yadav, an analyst at IDC in India. “Local vendors have remained dominant in the sub-$100 price band while they pose serious competition in the $100 to $200 range.”
Fast EnoughMicromax and Karbonn can’t import Chinese components and assemble their signature handsets fast enough, as demand for many of their Google Inc. (GOOG) Android-based phones is beating supply across the country. Online vendors are out of stock of the Micromax Canvas HD, leading consumers to New Delhi’s gray market shops, where the handset commands a 1,000-rupee premium, said Suraj Singh, owner of the Great Mobile Shop in the capital’s Gaffar Market.
Karbonn unveiled the Titanium S5 on March 15, with similar technical specifications to the Canvas HD: Qualcomm Inc. (QCOM)’s Snap Dragon quad-core processor, an 8-megapixel camera and a 5-inch touchscreen for 11,990 rupees. Samsung, the market leader in Indian smartphones, offers the same features on its Galaxy Grand for 21,500 rupees. The iPhone 5 starts at 45,500 rupees in a market where operators do not subsidize handsets.
Data SubsidyKarbonn is attracting buyers by flipping the global model of phone subsidies that allows operators like Verizon Communications Inc. (VZ) and AT&T Inc. (T) to charge $199 for an iPhone 5, which otherwise retails for $649. The Indian handset supplier is helping billionaire Sunil Mittal’s Bharti Airtel Ltd. (BHARTI) lure new subscribers by offering 500 megabytes of 3G data free for six months if they buy certain Karbonn handsets.
“Middle-class India is quickly realizing they can afford our devices, but it’s the recurring cost of data which they are struggling with,” said Devsare. “That’s the key. If we can get people online once, we believe our devices will be their point of access for years to come.”
Dinesh Shanker, 34, couldn’t find Micromax’s Canvas HD in New Delhi’s Green Park market, where entrances to phone stores are littered with window advertising for Apple, Nokia OYJ (NOK1V) and BlackBerry (BBRY). Instead of springing for one of the pricier devices from the global brands, Shanker said he’d wait for fresh shipments or consider the new Karbonn handset.
“I’m not one of those people who has 40,000 rupees to spare for a phone,” said Shanker, who works as a chauffeur to an expatriate family in the capital city. “What’s wrong with this phone anyway? My son will be impressed by the big screen.”
Deferred IPOsBoth companies have pushed back equity sale plans in the past three years. Micromax surveyed the market in 2010, before deciding against an initial public offering. Karbonn, which had plans to sell a 10 percent stake in the fourth quarter of the year ended March, delayed the decision to the new fiscal year, Devsare said.
While Micromax and Karbonn’s recent sales growth in India hasn’t been matched by Apple and Samsung, it’s not for lack of effort by the world’s biggest smartphone sellers. Both companies have been splashing their gadgets on the front pages of Indian national daily newspapers every week since November, boasting their deferred payment plans and trade-in offers.
India PotentialAfter Apple introduced the iPhone 5 and cut the price of its iPhone 4 to 26,500 rupees, sales spiked almost threefold in the quarter ended December from a year earlier, according to Consumer Media Research. Samsung shipped 2.2 million smartphones during the same period, a 74 percent increase.
Samsung is addressing India’s demand by offering “varied product line-ups,” Chenny Kim, a spokeswoman, said in an e- mailed statement. An Apple spokesman in London declined to comment on the company’s India business.
BlackBerry is also making the most out of India’s smartphone growth potential, opting to introduce the new $800 Z10 handset in one of its smaller markets before introducing it in its largest, the U.S.
BlackBerry has seen global revenue tumble, but less so in developing markets, including India, where smartphone sales are expected to surge 50 percent every year for the next three years and may cross $7 billion by 2016, according to IDC. After dropping the price of its popular Curve series in India to about $200, the company is readying lower-priced devices for emerging markets.
Almost 75 percent of the mobile phones Indians use cost less than 2,500 rupees, according to Gartner Inc. The percentage will shrink as users move from feature phones to smartphones over the next seven years, which is where Micromax and Karbonn will pick up market share, Devsare said.