Smartphone prices are most likely going to increase in the month of September since Rupee has hit a record low against the U.S dollar. Most of the components are imported from China and are forced to factor in 4% to 6% higher input costs.
Many Industry watchers mentioned most handset makers lock in their inventories till the middle of September at best. Having breached the 70-mark intra-day, Smartphone makers will have to spend more money for new contracts for components that are signed at the depreciated value of the Indian currency which ended at Rs 69.89 to the US dollar.
Even though brands have kicked off assembly of printed circuit boards (PCB) in India, most of the components are still imported from outside markets, mostly China. Thus, they remain vulnerable to currency fluctuations. Not many have the appetite to absorb the higher costs given their “wafer-thin” margins, especially on handset prices below Rs 20,000, said experts.
The rupee has also declined 5.4% on-year against the Chinese RNB in the recent past, which will also impact pricing, Hanish Bhatia, an analyst at Counterpoint Research said.
Pankaj Mohindroo, chairman, India Cellular and Electronics Association (ICEA), said that the 70-rupee psychological barrier has a major impact. “The industry will have to consider the price increase.”
The rupee erosion has been to the order of 6%-8% on the earlier average level which was around 64-66 to the US dollar, according to ICEA.
“Fortunately, CBU (completely built unit) imports have come down drastically. Deepening of the component ecosystem is an ongoing process and the 6-8% impact is softened by 20-30% because of value addition in the country. Therefore, the net impact on the bottom line will range between 4 and 6%,” Mohindroo explained.
Xiaomi said it would continue to evaluate the movement of the dollar. “But currently there are no plans to change our pricing.”
Panasonic‘s mobility head Pankaj Rana told that the company isn’t raising prices in the near term for its existing inventory.
“But, if it remains around Rs 70 or even higher for the next one month or so, then pricing will certainly go up for new products during the festival time,” Rana said.
“The mobile industry is already under tremendous pressure with the increase in the cost of raw material and customs duty. We are currently operating on very thin margin. With the strengthening of the dollar vs rupee, the pressure on the bottom line has further increased,” Sanjay Kalirona, CEO at Comio.
“We are reviewing the impact of the situation on the marketplace and will take a decision on pricing post that,” Kalirona added.
“August-October period was very important for all the vendors since it leads up to the all-important festive season, which typically starts in October and makes up over a third of annual revenue”, said Navkendar Singh, associate research director, client devices, IDC India.
“Now, they have done a lot of shipments in the past three months, some of them will carry that for August and some part of September. We should expect some increase in prices before the festive season hits in the next one month or so,” Singh adds. He also says that vendors may try to “cloak” the price hike via aggressive marketing, buy back promotions and financing offers as part of driving affordability.
Prabhu Ram, head – industry intelligence group (IIG), Cybermedia Research (CMR), said that in the lead-up to the festive season, brands operating in the sub-Rs 20,000 price band will have to seriously look at increasing prices since they operate with narrow margins.
Ram said that the premium smartphones can still ride against the rising dollar value to reap dividends during the festive season.