Erik Woodring: India’s Smartphone Market Poised to Take Off

India’s smartphone market could triple in size over the next decade, putting it behind only the U.S. and China.

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Welcome to Thoughts on the Market. I'm Erik Woodring, Morgan Stanley's U.S. Hardware Analyst. Along with my colleagues bringing you a variety of perspectives, today, I'll discuss our outlook for the India smartphone market. It's Monday, July 24th at 10 a.m. in New York.

We're making a bold call for India's smartphone market. We believe it will triple in size over the next decade to $90 billion and account for 15% of global smartphone shipments by 2032, up from just 6% today. That implies that India alone will drive 100% of global smartphone shipment growth over the next decade.

India has the largest worldwide population, but smartphone penetration is significantly lower versus the rest of the world. For the last two decades, investors have been intrigued by the vast growth potential of the India smartphone market. But so far, investor expectations have not played out, as smartphone penetration in India has failed to surpass 40% versus the global average of 60%. And growth in the India smartphone market has been overwhelmingly driven by low end devices, with razor thin margins for original equipment manufacturers or OEMs. In fact, the smartphone TAM or total addressable market is just 25% the size of China, despite a similarly sized population.

But we think the next decade will be different - it will be India's decade. Besides forecasting annual GDP growth of 6.5% for the next decade, our India Strategy and Economics colleagues believe that over the next decade, domestic consumption in India will more than double - driven by a number of important factors, including widespread economic reforms.

These efforts are expected to bring meaningful demographic change, with income per capita expected to double, and the number of high income households expected to quintuple over the next decade. Alongside nearly 100% electrification of the country and a government led effort to prioritize digital transformation, we expect strong demand for technology goods to emerge over the next decade. We see these factors as setting the stage for robust smartphone growth in India.

A recent AlphaWise smartphone survey of Indian consumers confirmed these trends, with three in four survey respondents acknowledging they are likely to purchase a new smartphone in the next 12 months, in line with other leading emerging markets. In fact, some respondents acknowledged they are more likely to own a smartphone over other household items such as a PC, car or refrigerator.

Furthermore, Indian consumers are willing to pay up to 20% more for their next smartphone to gain access to premium technologies such as 5G compatibility, longer battery life, better camera quality and more storage capacity. While it's still early days, we believe these survey results illustrate the growing importance of the smartphone in India and the rising potential for the Indian smartphone market.

When we take a step back, the two most important factors underpinning our $90 billion India smartphone TAM are growing smartphone penetration and positive mix shift, meaning customers are shifting their purchases to higher end devices. We estimate that in a decade, Indian smartphone penetration will reach 60%, the global average today. Furthermore, we estimate that over the next decade, 80% of India's smartphone market growth will come from smartphones priced in excess of $250, which have only accounted for about 10% of smartphone growth in India over the last five years.

Combined, we believe these factors will drive a 11% annual smartphone market growth in India over the next decade, allowing India to become the third largest smartphone market in the world at $90 billion, trailing just China and the United States.

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