The Russia smartphone market grew 5% YoY reaching 33 million units in CY 2016 driven by strong demand for affordable smartphones especially in the sub $100 segment. Two in three phones sold was a smartphone in 2016. Most of the annual growth was driven from sales in the latter half of 2016. Year 2016 has seen increase in promotional campaigns to offset the economic crisis during the year, which impacted consumer purchasing power to a certain extent.

During 2016, Russia saw a healthy uptick in smartphones, thanks to Chinese smartphone brands scaling-up their operations in Russia. As a result, Chinese brands' revenue crossed USD one billion in Russia for the first time ever in CY 2016. However, local smartphone brands like Digma, Tele2, Prestigio, Vertex, Dexp also grew by 118% YoY. Samsung continued to lead the smartphone segment followed by Apple, ZTE, Lenovo and Fly.

Entry level segment, especially sub$100 segment, is dominated by local and Chinese brands. The competition and domination across other price bands is also quite different and thus has accordingly contributed to the growth of different brands. Following is in-depth analysis of different smartphone price segments with some highlights of each price segment:

Sub $100 smartphone price band: Sweet spot

• Almost 37% of smartphones sold in Russia were under $100. This price segment is largely the domain of Chinese brands, which grew to almost 23% YoY
• Sub $50 is dominated by Tele2, Digma and Alcatel.
• Digma, a local Russian brand, has shown surprise growth as it increased by almost 15 times during the quarter, mostly due to the popularity of its entry-level 2G smartphones.
• 58% smartphones shipped in this price segment were LTE enabled
• 49% of smartphones shipped were powered by MediaTek, closely followed by Spreadtrum, in this high-volume segment
• Samsung’s Galaxy J1 Mini (2016) and Tele2 Mini are the best-selling models in sub $100 category

Exhibit 1: Price Band Sub $100

Conclusion:

Post economic crisis, the Russian mobile phone market has stabilised - primarily due to the growth in smartphone device sales. The overall smartphone segment was driven by affordable smartphones. Chinese brands have been successful in expanding their operations to Russia, thanks to the approach of offering relatively high level specifications at attractive prices with robust distributor tie-ups. Chinese smartphone brands are now snapping at the heels of big brands like Apple and Samsung. We expect Samsung to respond with more aggressive marketing and sales promotion activities in coming months to preserve its primary position in the market. Apple is likely less worried on volume terms but the recent issue of price fixing over the iPhone might impact in short term.