Demonetisation effect: IDC says smartphone sales to drop by 17.5 per cent in CY Q4 2016

Indiangovernment's demonetization move of making old 500 and 1000 Rupees notesinvalid as legal tender in the country has led to a slow down across manyindustries and consumer devices market seems to be no different. Cash is adominant mode of transaction in the devices market as it enables quicktransaction turnaround thus providing much needed liquidity for maintaining thedemand and supply mix in the devices business. Government's decision to recallthe high-value currency (Rs500 and Rs1000 notes) which accounts for more thantwo-third of the cash supply will lead to immediate but temporary contractionin the devices market in Q4 2016.

Cyclically,consumer purchases see a slowdown post the festival season in India. However,this year with the demonetization process underway, the sequential decline islikely to be higher owing to the cash crunch the country has been facing sincethe second week of November. This has already resulted in significant slowdownof demand across PC and Mobile devices; not just in offline retail but inonline channel as well, where Cash-On-Delivery (COD) contributes to a substantialportion of the sales.

Accordingto Jaipal Singh , Market Analyst, Client Devices, IDC India "Consideringthe poor sales due to the current cash crunch in the country, earlier estimatesfor Mobile phone has been revised downwards by 4.5 percent. CY Q3 2016smartphone and feature phone shipments were 32.3 Million and 39.9 Million unitsrespectively. CY Q4 2016 feature phone shipments are likely to decline sharplyby 24.6 percent and smartphones are expected to see 17.5 percent decline sequentially."

"Althoughthe early indications of October shipments were healthy, due to relatively poorsales in November, the inventory in channel is piling up which could take sometime to liquidate as the cash deficit reduces. However, we expect this to be atemporary impact on the market, as shipments are likely to revive to normalrun-rate and channel inventory health to improve by second half of CY Q12017," adds Singh.

The impactof this is seen to be more prominent in Tier 3 and beyond cities, where smallretail shops transact more in cash and penetration of digital payments is yetto reach the levels seen in bigger cities.

"Totackle the after-effects of demonetization, distributors are increasing thecredit cycle to retailers. Also, both retailers and brands have startedoffering more lucrative offers to try to offset the sluggish demand from cashcrunch-hit consumers. With reduced cash transactions, alternative forms ofpayment are seeing a surge in demand. This should eventually lead to strengtheningof such payment methods in the future," adds Upasana Joshi , Senior MarketAnalyst, IDC India.

Similarly,tablet PC (Slate + Detachable) market is also witnessing a slowdown due todemonetization. "From our earlier estimates for CY Q4 2016, forecast isrevised down by 3-5 percent. The revision in shipments is primarily in consumersegment due to sluggish demand while commercial segment continues to beclocking healthy numbers and seems to be the least impacted by demonetizationmove. From 1.06 Million units in Q3 2016, considering the seasonal decline inQ4 and impact of demonetization, the tablet shipments is expected to sharplydecline sequentially by 23 percent in Q4 2016," says Karthik J , SeniorMarket Analyst, Client Devices, IDC India.

"Demonetisationinduced cash crunch has indeed impacted consumer's PC purchase, as lower cashvelocity is forcing consumers to postpone their discretionary purchases. Morethan half of PC buying from retail and exclusive stores in India is donethrough cash, hence we are anticipating that demonetisation should furtherbring down the consumer market by 33 percent in Q4 2016. The lower tier citiesare more cash driven and the magnitude of impact will be larger compared tometros," says Manish Yadav , Associate Research Manager, Client Devices,IDC India.