Impactful handset industry marriages

Faisal Kawoosa / CMR - India
08 Mar 2018

Reliance Industries Limited (RIL) promoted Jio - the latest telecoms operator on the Indian market-scape - has just overturned the market. Not just in terms of intruding into the profitability of incumbents like Bharti Airtel, Vodafone, Idea Cellular and government run BSNL/MTNL, but also in charting unusual pathways for technology adoption.

Prior to Jio's entry to the scene, data services over mobile were synonymous to 2G and 3G. So was the portfolio of handset makers, especially the Indian brands, who are primarily aligned with the mass entry level markets.

The emergence of Chinese brands like Oppo, Vivo and of recently Xiaomi followed by Jio going live with its 4G services, had its bearing on rechristening the mobile handset market as well. All of a sudden, 4G took precedence in smartphone space and even we saw conventionally feature phones being enabled with 4G connectivity.

The result was obvious. Indian handset brands started to witness pressures on many fronts. The sales dipped, and channels were also not keen to sell their inventory as the Chinese counterparts were offering higher margins and better marketing support. This is reflected by recent market measurements, where in 3Q and 4Q of calendar year 2017, Chinese players led by Xiaomi posted strong sales. Similarly, in the premium segment OnePlus is on a growth trajectory. Xiaomi and OnePlus are not only making things difficult for Indian brands but are also entering into territories that were comfortably occupied by the global Tier 1 brands like Samsung, HTC, Sony and Apple to name a few.

It is certain that there will be handset makers exploring mergers and acquisitions to synergize the strengths and emerge as a strong player. Primarily from an India market perspective - although some of the suggested ones will have global ramifications - here are some of the proposed M&As in the handset industry.

  1. Samsung acquiring OnePlus:OnePlus has been among a very few smartphone brands that remained focused. Had the brand gone mass market by having options at each price point, it could potentially also have grown in terms of market share and would have been figuring in top 5 in India. However, its discontinuation of OnePlus X was a firm reiteration that it wanted to remain focused and emerge as a premium only brand. One of the key differentiators for OnePlus that has become its strength is their Oxygen OS that runs over Android. With Oxygen OS, OnePlus has been able to concentrate on delivering the best of experience that a premium user looks for. This is what Apple has also built its philosophy on. Samsung on the other hand has emerged as a strong player in all major component segments. Recently, it surpassed Intel in the semiconductor domain. At the same time, it already has strong presence in display, batter and memory components. What it is missing is a complimenting OS. Though it has built a very interactive and user-friendly UI over Android, mere UI doesn’t suffice especially in the premium segment. This is where OnePlus has an edge using Oxygen. So, if Samsung pursues an acquisition of OnePlus, it would definitely add a lot more to Samsung and help it gain more in the premium segment where the benchmark is the iPhone experience.
  2. Vivo and Oppo merger: Vivo and Oppo have played a vital role in smartphone adoption in India and other markets. However, talking from Indian perspective they have many similarities other than coming from same BBK Electronics. Both Vivo and Oppo have been figuring among the top 5 smartphone players in India for a pretty long time. They are both focused on offline market and have more or less same inventories targeting similar potential market base. However especially since the second half of 2017, both the brands have stagnated, and the long-term trend of these brands suggests they are stuck between 5-10% of market share. Contrary to that, Xiaomi has surpassed the leader Samsung by shipment volumes in 4Q 2017. If Vivo and Oppo merge they will have a lot of things to get along. It will at the same time help the combined entity have a double-digit market share, 12-14% in Smartphones. Else, we are seeing the gap between No 1 & 2 and No 3 widening as every quarter passes by. Vivo and Oppo coming together shall be able to reinforce the entire value chain starting from R&D, manufacturing and right up to sales and after sale service.
  3. Blackberry acquiring HTC: Blackberry was once the default enterprise smartphone. But since being disrupted by iPhone, the company has been figuring out how to position. The last positioning it attempted was to the be a security partner for smartphone brands that would be interested in licensing its technologies. At the same time, Blackberry would continue to showcase some flagship smartphones. But this also hasn’t got well. At the same time, HTC is one such smartphone brand, that once being known for designs and styles, has seen a substantial dip in its performance. When consumers are experimenting with so many brands, with look and style being one of the main decision triggers, HTC hasn’t been able to capitalize this market sentiment. Blackberry and HTC make a perfect pair that could leverage their software and hardware strengths respectively to give market a new view of what enterprise smartphone should look like – both in design and functionalities. With Blackberry strengths the smartphone could easily pass the enterprise grade requirements and HTC could excite with the design element. As such offering would be essentially being targeted at mid to high end smartphone users, both could bring substantial value together on the table.
  4. Micromax acquiring Celkon: One of the common weak points of all Indian brands is their weak presence in South India, which is one of the fastest growing smartphone markets. Micromax being the largest of the Indian brands is also impacted with thin presence in the southern part of India. Celkon on the other hand, is a south India based brand that has not been able to establish itself as a national brand. For Micromax to plug the gaps across the value chain, it would be the best of the fit to acquire Celkon and strengthen its distribution network in the Southern region starting from Andhra Pradesh and Telangana states. With this acquisition Micromax could at least start addressing the gaps and also look for other strategic partnerships that would pep up its value chain.

These prescribed ones are not the only ones due for M&A. There are other brands as well that have to look for inorganic growth paths to emerge strong aligning with the market sentiments. Other brands from Indian context that should explore M&A include Asus, Gionee, Karbonn and Intex. However, these may be the brands getting acquired by players which are looking for a quick growth by inorganically strengthening a gap in the overall offering. The brands that should look for acquiring such brands could be Honor by Huawei, Lava, Lenovo (including Motorola) among others.

Faisal Kawoosa is head of new initiatives at CMR – India. Having over 13 years of research and consulting expertise in technology domain, he specifically covers Telecom, IP Technologies, Devices, Electronics, Applications, Start-ups, Incubation and other emerging technologies.

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