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Parallel smartphone imports start in Russia, can they help?

Smartphone brands leave Russia

Following the Russian invasion of Ukraine on the 24^th of February 2022, several smartphone makers withdrew from Russia, including two of the biggest – Samsung and Apple – which led the market in terms of shipments and revenue respectively. Apple initiated the move on the 1^st March, followed by Samsung three days later. With the two major brands out, the market is facing a void which Chinese brands – so far operating in Russia largely as normal – will struggle to fill in the short-term considering their own risk-taking ability, supply chain issues and China’s official stance on the crisis.

With shipments cut off, consumers flocked to snap-up limited handset stock from their favourite brands, evidenced by Russian smartphone sales increasing slightly in March. However, with Samsung and Apple inventory dwindling, sales declined steeply in April. The market also missed out on major launches like the Galaxy A series refresh and Apple’s iPhone SE 2022, which would have helped shore-up the market.

Russia legalises parallel imports

To ease the stress placed on consumers, the Russian government temporarily legalised parallel imports, allowing devices to be imported via non-official channels. This differs from the grey market, which involves distribution channels that are not authorised by the original manufacturer, in that the government is aware of and is able to tax the sale of these devices. However, it remains unclear when these parallel imports will be halted by the government.

First batch arrives

The government announced the decree in March 2022, but the first parallel imports appeared in late May. Smartphones like the Samsung Galaxy A23, A33 and A53, and the Alpine Green variant of the Apple iPhone 13, all launched after Samsung and Apple’s exit, are listed with major retailers like Svyaznoy, M.Video and DNS. The devices are imported from Kazakhstan, evident from the model numbers ending with “KZ”.

These parallel imported smartphones do come with their issues:

Buyers of the imported iPhone 13 will face difficulties in side-loading alternatives to applications blocked in Russia, although Samsung users will find it easier given the openness of the Android ecosystem.
The prices are higher and post-purchase service for these devices is not guaranteed from official stores. Third-party repairers might help, but may struggle to source parts.
Some smartphones will be locked by carriers unless a supported SIM is inserted. Such devices are reported to make up 20% of Samsung’s parallel import in the country.
The smartphone brands could devise ways to deactivate these devices if deemed necessary.

Future Outlook

The parallel imports can provide temporary relief to Russian consumers by easing supply issues. However, the quantity is expected to remain low as distributors would have to source from various countries, and consumer confidence in such devices would also be low due to warranty issues and the potential inability to use applications like Apple Pay, Google Pay etc.

Several brands like Svyaznoy and MTS have started selling refurbished devices, which may be more favourable for consumers due to lower prices and certainty of service from official stores.

Samsung will likely account for most parallel imports due to the ability to side-load applications. Meanwhile, we expect the Chinese OEMs, especially Xiaomi, realme and HONOR, to capitalise and capture significant share in Russia by the end of this year. Nevertheless, the overall smartphone market is still expected to decline in 2022.

Europe Smartphone Market Drops 12% YoY in Q1 2022; Region Braces for Further Challenges Ahead

49 million smartphones shipped in Europe in Q1 2022, the lowest first quarter total since Q1 2013
Samsung remained as the region’s top vendor, despite a significant drop in shipments
realme was the only top-five vendor to register annual shipment growth in Q1 2022
Deteriorating macro and geopolitical environment expected to drive further declines in 2022

London, Boston, Toronto, New Delhi, Beijing, Taipei, Seoul – June 15, 2022

The European smartphone market declined by 12% year-on-year in Q1 2022, according to the latest research from Counterpoint Research’s Market Monitor service, registering the lowest first quarter shipments for nearly a decade. The decline was caused by a number of factors, including ongoing component shortages, COVID-19 related lockdowns in China, deteriorating economic conditions and the onset of the Russo-Ukraine war.

Counterpoint Research’s Associate Director, Jan Stryjak said, “existing issues such as COVID-19 and component shortages have been exacerbated by new economic and geopolitical challenges. Rising inflation levels across the region are impacting consumer spending, while Samsung and Apple, Russia’s first and third ranked smartphone vendors, halted all shipments into Europe’s largest market in early March 2022.”

Q1 2022 European Smartphone Shipment Market Share and Growth

Source: Counterpoint Research Market Monitor Q1 2022. Totals may not add up due to rounding.
Note: Xiaomi includes Redmi and POCO, OPPO includes OnePlus.

Stryjak added “the two vendors make up around half of Russian smartphone shipments, but their combined shipments in Russia account for only 6% of total European smartphone shipments. The consequences of their withdrawal are, therefore, still relatively small on a regional scale. However, the impact of the war may develop wider ramifications if it leads to a drop in availability of raw materials, a rise in prices, further inflationary pressure and/or other vendors withdrawing from Russia”.

Both Samsung and Apple shipments declined annually in Q1 2022, despite launches of new devices: Samsung with its latest flagship Galaxy S22 series and Apple with its mid-tier iPhone SE update. Xiaomi and OPPO, meanwhile, continued to suffer from component shortages, although both are showing early signs of recovery. Bucking the trend in Europe, realme was the only top-five vendor to register an annual growth in shipments in Q1 2022, and it remains one of the region’s fastest growing major brands (only Nokia HMD and Google grew faster, albeit from a much smaller base).

Looking forward, the overall situation is expected to get worse before it gets better. Many countries in Europe are perilously close to recession, and the Russo-Ukraine war is unlikely to be resolved any time soon. Annual growth in smartphone shipments is therefore expected to continue to decline for the next few quarters, especially in Q2 as the cost of living across the region hits record highs, and the full impact of Samsung and Apple’s withdrawal from Russia is realised.

Price Hikes Slow Automotive Industry Recovery

The global automotive industry has been in turmoil since 2020. The industry and its supply chain were initially disrupted by COVID-19, and then by supply chain chaos when the sector was unprepared for the demand rebound.

With the semiconductor shortage beginning to ease, 2022 was expected to be a better year, as indicated by increased sales during the initial months. But Russia’s invasion of Ukraine and fresh COVID waves in China have further delayed the industry’s recovery. Restricted supplies of critical raw materials procured from Ukraine and Russia are causing new supply chain impacts, driving up raw material prices including that of lithium, cobalt and nickel – the latter by 60% – as well as aluminium and, to some extent, steel. Furthermore, gases used in the production of semiconductors are also impacted – although the overall effect is unlikely to be immediately material. To cope with these cost increases, automakers across regions have reluctantly increased their vehicle prices, despite the likely impact on demand.

China

The Chinese automotive sector is contending with a double whammy – subsidy cuts and sharply increasing materials prices. The country’s government cut subsidies on NEVs (New Energy Vehicles) by 30% in 2022. This was long planned but will impact demand right at the point where escalating costs are increasing prices:

Tesla increased the price of its cheapest Model Y by more than $2,000 in March. The recent inflationary pressure on raw materials and logistics forced Tesla to then make a further price increase, the second time within a week, which looks like bad planning or miscommunication as much as a forced price increase.
Leading Chinese electric vehicle (EV) manufacturer BYD increased prices by $500-$1,000 depending on the model and specifications. BYD is developing and producing LFP batteries in-house but still increased prices twice this year.
Xpeng, a rising Chinese EV start-up, followed in the footsteps of larger OEMs to increase prices by $1,500-$3,000. Smaller OEMs may find it harder to control costs and compete with larger OEMs as they have less control over supply chains.
Other important auto OEMs such as Chery, SAIC, Hozon Auto and Wuling Motor also announced price increases for NEVs.
ORA has been forced to stop taking new orders due to a shortage of chips and other core components.

US

The US recently released its EV policies which are designed to push up EV adoption rates. But the Ukraine crisis and geopolitical tension with China may hinder the country’s plans. The US imports a major portion of its rare earth metal requirement for vehicle production.

To become self-sufficient and to keep the EV adoption progress on track, President Biden may include these rare earth metals under the Defence Production Act, which will enable the country’s mining industry to extract and refine these metals. Mining in the US has been restricted due to its environmental impact. Any resumption of broader domestic mining activity will eventually lead to price decreases, but this is not a quick fix.
Automakers are increasing prices to deal with supply chain situations and simultaneously building inventories as a hedge against future supply chain shocks. The largest EV manufacturer in the world, Tesla, increased prices by $2,000-$12,500 depending on the model from the third week of March. Ford has made significant price increases across several models. The F-150 Raptor was subject to the biggest increase ($3,300).

Europe

The ongoing Ukraine crisis has forced European automakers to halt production lines as the supply of critical auto parts has been severely hit. Moreover, in solidarity with Ukraine’s fight against Russia, automakers have withdrawn from Russia.

Auto OEMs such as Volkswagen, BMW and Porsche temporarily shut down plants to deal with the supply chain disruption. European automakers are dependent on Russia and Ukraine for the supply of raw materials for battery production, wire harness, neon gas and more. However, the level of dependence isn’t so high, which is one reason European automakers haven’t increased prices compared to other regions. There may be another reason, like profit margins, which are higher for European automakers and can absorb some of the extra costs.

Inflation across Europe reached 7.5% in March 2022, up from 5.9% in February. Though no OEMs operating in Europe, except Tesla, have announced price increases so far, we expect them to do so soon. The rising prices of petrol and diesel in Europe have created a favourable market for EVs, so automakers don’t want to disrupt EV demand by increasing prices.

Japan

The Japanese government removed most-favoured-nation (MFN) treatment for Russia over its invasion of Ukraine. This increased import tariffs by 3% to 10%. The demand for aluminium for automotive applications is rising due to the growing demand for lighter-weight products in line with the shift towards electric mobility. For these reasons, the Japan Aluminium Association is also concerned about price hikes, which may slow down BEV adoption in Japan.

German automakers Volkswagen and Mercedes-Benz raised prices by an average of 2% and 1% respectively. Jeep increased prices by 13% from March.
Japanese automakers including Toyota and Honda are resisting price hikes for now, while Nissan is reducing optional equipment and vehicle grades to cope with increased costs. For example, it is eliminating manual transmissions and narrowing the combination of best-selling models.

India

India’s government had extended its Faster Adoption and Manufacturing of Electric vehicles-II (FAME-II) program by two years until March. This initiative is further supported by the Production Linked Incentive (PLI) scheme for Advanced Chemistry Cell (ACC) battery storage. India is trying to become a world-class manufacturing destination and more self-reliant in terms of production. As India’s automotive industry is dependent on other countries such as China and Japan for automotive parts, it is becoming difficult for automakers to control input costs.

Indian automakers are also reacting to raw material price hikes by increasing car prices by at least 2%. KIA Motors has increased prices of all its vehicles. Maruti Suzuki, India’s largest passenger vehicle (PV) maker, has also increased the average price of its cars by 8.8% since January 2022. Toyota, Tata Motors, Hyundai and MG Motors have also increased prices for their vehicles across ranges. Even premium vehicle brands such as BMW India, Mercedes-Benz India and Audi India have announced at least a 3% increase in their vehicle prices.
Due to the low EV adoption, high prices of lithium and cobalt have not directly impacted the industry. The price hikes in India are mostly due to the rise in the price of steel. Steel is used in manufacturing vehicle chassis and body. Nickel-containing stainless steel is used in some drivetrain components.
In addition to rising materials costs, fluctuating exchange rates and rising operational costs are other factors driving price increases.

Counterpoint’s Take:

The recent cost increases have already affected the EV industry. 2021 saw EV sales rising by more than 200% but price increases are likely to put the brakes on a continuation of this fast growth. However, while EV sales will slow, sales of conventional ICE vehicles will see more significant declines due to the global fossil fuel price inflation. For 2022, we expect global passenger vehicle sales will be around 72 million, some 5 million units lower than our earlier projections.

Related Posts

Russia Lags Europe in 5G Deployment

Europe was an early adopter of 5G with Swiss telecom operator Sunrise deploying the continent’s first 5G network in April 2019. By the end of Q1 2021, 5G had been deployed in more than 30 European nations with most of them having multiple 5G operators. However, despite being Europe’s biggest market, Russia is lagging behind its counterparts. Out of all the operators in the country, only MTS has deployed 5G, that too in a limited capacity in the capital region. Others are still in the testing phase.

Among multiple obstacles faced by Russia’s operators in 5G deployment, the primary one is also the foundational one — allocation of the right spectrum. Operators are demanding C-band (3.3GHz-4.2GHz), which is considered the most ideal for 5G around the world, with the available equipment widely supporting it. But this band is occupied by Russian government agencies and the military. Deploying the network on other bands would be costlier as the equipment would have to be manufactured separately for this. As a result, companies would not be able to achieve economies of scale. The operators claim that their expenditure will not pay off till 2040 if they do not use the 3.5GHz-3.8Ghz band.

Moreover, the 4.4GHz-4.9GHz band is being used by NATO for aircraft recognition systems, which would get impacted if Russia decides to use the same band for its 5G services. Russia shares its border with five NATO countries.

The issues regarding 5G are so crucial that Tele2, Megafon and Beeline had to create a joint venture, New Digital Solutions, to overcome these obstacles. The JV, which got the regulatory approval in February 2021, will work to obtain the 694MHz-790MHz, 3.4GHz-3.8GHz, 4.4GHz-4.99GHz and 24.25GHz-29.5GHz bands.

Another factor that is causing the delay is the government’s concerns over security when using foreign equipment. The government has asked the operators to use domestic software and hardware from 2024 while deploying 5G. However, the operators think this will not be cost-effective as domestic partners are not available in sufficient numbers.

Considering all these factors, it is unlikely that large-scale 5G deployment would be possible in Russia for the next two to three years.

However, despite this, 5G smartphone shipment are on the rise in Russia, growing 39% QoQ in Q1 2021. Over one-fifth of the devices shipped in Russia in Q1 2021 were 5G capable, according to Counterpoint Research’s Market Monitor report for Q1 2021.

The share of the premium smartphone segment, where 5G has become a standard offering, is increasing in Russia. At the same time, thanks to relatively new entrants like realme, 5G has been trickling down to the $300 and below segment.

Conclusion

Lack of spectrum and not-so-friendly regulations are slowing down 5G deployment in Russia. The customers seem to be willing as 5G capable phones are already fetching buyers, and this would be something operators can leverage upon once they start rolling out 5G services.

COVID-19 Caused European Smartphone Market to Decline 24% YoY for Q2 2020

COVID-19 outbreak continues to impact the European smartphone market as sales contracted 24% YoY and 22% QoQ for Q2 2020.
Chinese players held 35% market share in Europe, new entrants like Oppo and Xiaomi grew 41% YoY and 55% YoY, filling the void created by Huawei’s decline.
Huawei continues to lead the chart for Russia smartphone market with 29% market share.
OnePlus grew 128% YoY in Eastern Europe driven by the good performance of OnePlus 7t and 8 series.

New Delhi, Mumbai, Hong Kong, Taipei, Seoul, San Diego, London, Buenos Aires – July 29^th, 2020

The European smartphone market declined 24% year-on-year (YoY) and 22% quarter-on-quarter (QoQ) in Q2 2020 amid the worst part of the COVID-19 outbreak, according to Counterpoint’s Market Pulse service. Eastern Europe which seemed almost immune to the pandemic in Q1 2020 declined 24% YoY in the second quarter.

Commenting on the overall market, Peter Richardson, VP of Research said, “The impact of COVID-19 gathered speed in Europe during April as it was the first full month of lockdowns across almost the entire region, causing a decline of around 45% YoY and 30% MoM. As the lockdowns started to lift across Europe in May, the sales rebounded (+33% MoM). June was equally good, posting a further sequential increase of 34%. Though MoM comparisons look good, the overall scenario for the quarter still shows a 24% YoY decline.”

Sales did not completely stop as e-commerce channels remained open and functioning even in countries with the most severe lockdowns such as Spain and Italy, and this was supported by European governments’ generous furlough schemes. However, as this support is being reduced, there is an increased threat of wide-spread redundancies across many businesses. Russia’s smartphone market, which was slow to acknowledge the presence of COVID-19 in Q1 2020, became the worst affected European market in Q2 2020 declining 27% YoY for the quarter.

Commenting on the top OEMs in the European market, Abhilash Kumar, Research Analyst said, “Samsung continues to lead the market. This is driven by its diversified portfolio and new product lines that cater to the requirement of all price bands. Apple, supported by good performance of the iPhone SE and 11 series, restricted its sales volume decline to 14% YoY. Meanwhile, Huawei declined 46% YoY amid US-China trade sanctions. Xiaomi and Oppo grew 55% YoY and 41% YoY even during the pandemic. With their attractive specs at affordable prices, they managed to woo some potential Huawei users to gain share at its expense.”

Analyst Contacts:

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Abhilash Kumar

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COVID-19 Weighs on European Smartphone Market in Q1 2020

The viral outbreak followed by lockdowns caused the Europe smartphone market to contract by 7% YoY and 23% QoQ
Apple remained resilient while Huawei declined sharply for the quarter – though this was more than COVID-related

New Delhi, Mumbai, Hong Kong, Taipei, Seoul, San Diego, London, Buenos Aires – June 3rd, 2020

Smartphone sales declined 7% year-on-year (YoY) and 23% quarter-on-quarter (QoQ) in Europe during Q1 2020 amid COVID-19 outbreak, according to Counterpoint’s Market Pulse service. The impact of the pandemic was relatively stronger for Western Europe, down 9% YoY, than for Eastern Europe, down 5% YoY.

Commenting on the overall market, Peter Richardson, VP of Research said, “Q1 is seasonally weak, but the coronavirus outbreak amplified this. The smartphone market decline was primarily due to COVID-19 outbreak across the region in the second half of the quarter. The biggest five markets in Europe entered lockdowns of varying severity at different points in March. Consequently, most of the offline stores were closed, though online remained open throughout. Also, the economic impact of the pandemic has led to lengthening replacement cycles as consumers withhold making discretionary purchases.”

Europe Smartphone Sales Market Share (%), Q1 2019 vs Q1 2020

Amid the COVID-19 outbreak, Italy was the worst affected of all European countries, driving the smartphone market to a 21% YoY decline. In other markets, some operators such as Vodafone, and retailers such as Dixons Carphone were able to adjust to the sharply higher online demand and somewhat offset the decline. Others however, like Mediamarkt/Saturn in Germany, had underinvested in digital channels and lost sales due to store closures.

Coronavirus did not officially make its presence felt in Russia until late March/early April and hence the market remained relatively resilient in Q1 2020, declining just 1%.

Counterpoint Europe Smartphone Market Q1 2020

Commenting on the top OEMs in the European market, Abhilash Kumar, Research Analyst said, “Samsung continues to lead the chart for Q1 2020. This is driven by Samsung’s diversified portfolio across all price bands. Also, marketing campaigns around the Galaxy S20 launch boosted its overall sales. Unlike Chinese OEMs, Samsung had no supply issues and was not impacted by China lockdown worries. Apple remained flat for the quarter and showed its resilience during the COVID-19 crisis. The iPhone 11 series continues to perform well, despite a lack of supply in some markets and some channels. However, the expensive models slowed considerably in March. Huawei declined a sharp 43% YoY for the quarter as the US trade sanctions continue to bite. Xiaomi has been the biggest beneficiary from Huawei’s decline as it grew 145% YoY capturing 11% share in the quarter.”

Key market summary:

Huawei’s co-brand Honor led the Russian smartphone market in Q1 2020.
Chinese OEMs like Xiaomi and OPPO benefited from Huawei’s continuing struggles and hence grew more than 150% YoY for the quarter driven by strong performances in Russia, UK, France.
5G smartphone sales accounted for 4% of the overall market sales in Europe in Q1 2020.
Apple iPhone 11 was the best-selling model in Europe in Q1 2020.

Analyst Contacts:

Peter Richardson

Abhilash Kumar

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Huawei Captures Top Spot in Russian Smartphone Market in Q4 2018

Seoul, Hong Kong, New Delhi, Beijing, London, Buenos Aires, San Diego

February 20^th, 2019

Aggressive marketing in both online and offline channels helped Huawei achieve 91% year-on-year volume growth in Q4 2018 and overtook Samsung as the market leader.

With a 28% market share in Q4 2018, Huawei overtook Samsung as Russia’s top-selling smartphone brand, according to the findings of the latest Market Pulse service from Counterpoint Research. According to the findings, Huawei’s volumes grew 91% year-on-year as it claimed the top spot in the market.

Commenting on Huawei’s top position, Tarun Pathak, Associate Director at Counterpoint Research said, “Despite the decline in the overall market, Huawei managed to sell more than 2.6 million smartphones in Q4 2018 capturing the highest market share in Russia because of its diverse product line and its significant presence across all price bands. Huawei’s sub-brand Honor has helped it tap the affordable-premium and mid-price segments, which helped drive increased market share for the OEM. Also, Huawei has been aggressive in its marketing, be it through strong retail tie-ups or online banners on different e-commerce websites.”

According to Counterpoint Research’s findings, Russia’s smartphone sales volume declined 11% year-on-year during Q4 2018. This was the first time that the Russian smartphone market contracted. The decline was primarily because of the devaluation of the Russian Ruble, by more than 15%. The decline in the currency negatively affected the prices of imported handsets. Other reasons for the decline include the fall in Apple’s shipments, a decrease in Russia’s GDP during Q3 2018 and a lengthening replacement cycle.

Commenting on the overall market, Abhilash Kumar, Research Analyst at Counterpoint Research said, “Global and Chinese OEMs are more popular than local OEMs and account for more than 80% of the market in Russia. Due to economies of scale, foreign players can provide better offerings at lower prices leading them to marginalize local players. One consequence is that the average selling price of smartphones in Russia is increasing due to an increase in disposable incomes, evident in the growing mid-level segment.”

Russia Smartphone Sales Market Share Comparison

Source: Russia Model Share Tracker

Market Summary:

84% of the total smartphone market was captured by the top five players.
Huawei grabbed the top position capturing 28% market share during Q4 2018 and saw a 91% year-on-year growth.
Overall in 2018, Samsung was the market leader with a 28% market share followed by Huawei (24%).
The reason behind Huawei’s growth was its balanced portfolio and its aggressive marketing in both online and offline channels. Honor 7A was the top-selling device in Q4 2018.
Local player Bright & Quick was able to secure a position in the top five smartphone brands due to its strong portfolio in the sub-US$100 segment.
Apple saw a decline in sales volume by more than 30% year-on-year. However, in terms of value, it remained number one with more than more than 35% value share.
Local players are mainly restricted to the sub-US$99 segment because of very tough competition and better offerings from foreign players in other price segments.
Local player, INOI witnessed a significant increase in the market share.
Large screen phones are more popular in Russia and around 82% of the smartphones sold had a display of five inches or more.

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Background:

Counterpoint Technology Market Research is a global research firm specializing in Technology products in the TMT industry. It services major technology firms and financial firms with a mix of monthly reports, customized projects and detailed analysis of the mobile and technology markets. Its key analysts are experts in the industry with an average tenure of 13 years in high-tech industries.

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Key Trends Driving Russian Smartphone Market in 2019

The Russian smartphone market has seen consistent YoY growth over the past few quarters despite a decline in the global smartphone market. This has made it a key country for smartphone OEMs looking to growing in Central and Eastern Europe in CY 2019 and beyond.

Samsung, Huawei and Apple are the three major players, followed by Bright and Quick, Xiaomi, Nokia HMD, etc. The Russian audience is spending on new features and has enough disposable income to buy smartphones.

Source: Counterpoint Research Market Monitor

Despite an emerging smartphone market, there are different variables that are going to be the deciding factor for trade in the Russian market and players should undertake a thorough PESTEL (Political, Economic, Social, Technological, Environmental and Legal) analysis before making any move.

Apart from the global smartphone market trends like 5G, foldable phones, punch hole displays, etc., we see the following upcoming trends in the Russian smartphone market:

Increasing Competition: Growth numbers have made the market look attractive and many global players have already announced Russia as a major focus.
- Chinese smartphone players like Huawei, Xiaomi, Bright and Quick have been continuously focussing on the market and initial expansion has been aggressive.
- Vingroup, Vietnam’s top company by market value has specifically mentioned Russia as the market it wants to target. Recently, Vingroup has acquired 51% stake in BQ (Spanish smartphone maker) and plans to enter Russia with this partnership.
- Yandex is the largest search engine in Russia with penetration of more than 55% in the Russian search engine space. It also has its own app for payment, music, maps, taxi and food. Yandex recently unveiled its new smartphone and this is poised to disrupt the smartphone market ecosystem in Russia, giving direct competition to major players. Yandex has been aggressive in marketing and advertising of its phone and, according to its product page, more than 80,000 people have expressed interest in the device in just the last two months. It is expected to be among the top 10 best-selling models in CY 2019, provided Yandex is successful in scaling production.

App Market Trends: The Russian app market is the fifth largest in the world and is still growing quickly. Analysing the app market and understanding market trends is a productive way for OEMs to design smartphones that align with local users’ needs and usage.
Gaming phones: Russia’s gaming market is huge and smartphone players launching phones to tap into this market are expected in 2019. Out of the total apps downloaded from the app market, more than 45% were games and a major driver for app markets’ revenue. In Europe, Russia was ranked no. 1 in the number of games downloaded through apps. Asus has already launched its ROG Phone in Russia and it is expected that other smartphone players will seek to cash-in on this opportunity.
Spending behaviour: Russian smartphone market has seen a change in spending behaviour in smartphones. Price band $30-90 which was the top selling price band in 2Q17 saw a YoY decline of around 8%.

Source: Counterpoint Research Market Monitor

Price band $90-150 is attracting more buyers with a YoY growth of around 9% since 3Q2018 and is expected to be the top choice for Russians in the coming months.

US Russia Relations: Recently, a chain of events (for example, escalations in the Ukraine conflict) occurred that did not favour US, Russia relations. If the relationships between the two nations are further compromised, US brands such as Apple may come under increased pressure.
Blockchain friendly phones: Russian programmers have a significant presence in crypto currencies and Moscow ranks no. 1 in the number of Initial Coin Offering projects based on the location of their CEOs. Blockchain has proved to be major income source for around 15% of the Blockchain users and this penetration is likely to increase. Blockchain has made an impact in Russia and is now finding new applications over a diverse set of business fields in Russia. This presents a potential opportunity for smartphone players to offer blockchain supporting products such as the HTC Exodus 1.

Chinese Brands Captured Over 25% of Russia Smartphone Market during Q2 2017

According to the latest research from Counterpoint’s Market Monitor service, Russia smartphone shipments declined 12% YoY during Q2 2017 but grew 2% sequentially. With over 50 brands competing in the market, Chinese brands now capture over 25% of the total smartphone market while local brands share declined to single digits.

Commenting on the results, Associate Director, Tarun Pathak said, “Decline in smartphone segment was mostly due to seasonality and lack of offers from the retail side. However, premium segment almost doubled YoY thanks to push from retailers opting for credit and instalment schemes. This has helped Apple to reach double-digit market share in Russia smartphone market and maintaining its lead over premium segment, which it has led for the past couple of years.”

Mr.Pathak further added “Even though the entry-level smartphone segment declined by 50% YoY, the segment is estimated to return to growth during second half of 2017 as most of the first-time smartphone users are now coming from outside major cities in Russia. To target these users local and new Chinese players are tying up with the retailers with their affordable entry-level devices.”

Research Associate, Minakshi Sharma commenting on the competitive landscape said, “Xiaomi (+375%) & Huawei (+107%) were the fastest growing brands during the quarter. Xiaomi’s go-to-market strategy involved expansion in both online & offline channels which helped it to achieve growth within a year of its operations in the country. Huawei’s growth can be attributed to its strong channel presence and promotional offers during the quarter. However, even with Chinese players growing fast in Russia, Samsung is still able to maintain a significant lead over the competition due to its strong retail network.”

Market Summary:

Russia smartphone shipments grew by 2% sequentially but declined by 12% YoY in Q2 2017.
Samsung led both overall and smartphone segment with market share of 24% and 37% respectively during Q2 2017.
During the quarter Samsung managed to resume the sales of its devices in leading mobile retail chains such as Euroset & Svyazony as well as on mobile operator Megafon which were earlier blocked due to quality dispute and repair guarantees between the Samsung and the retail chains.
Apple maintained its second place with 10% market share during Q2 2017.However, 2/3^rd of its shipments are still contributed by older models. Huawei, Bright & Quick & ZTE were the other brands among top five smartphone brands.
Global brands captured almost 60% of smartphone market and grew 10% sequentially during the quarter followed by Chinese brands with 27% market share.
Xiaomi expanded its footprints during the quarter through its official distributor RDC. Xiaomi is also planning to open offline stores in major cities of Russia in coming year. Almost 25% of the Xiaomi sales during the quarter came from online channels.

LTE capable smartphones contributed 76% of total smartphone shipments in Q2 2017. LTE smartphone segment in Russia grew by almost 28% YoY.

MediaTek embedded smartphones contributed to almost 32% of total smartphone shipments while Qualcomm share reduced to 13% from 20% a year ago. However, Samsung captured almost 22% of the smartphone chipset market share during the quarter due to strong demand of its mid segment products.
Almost 86% smartphones shipped during Q2 2017 were Phablets (>=5 inches) growing 5% sequentially.
Mid end segment has largest number devices being launched with brands attracting users through offers like trade-ins, data bundling and higher memory capacity options for similar SKU’s

Online channels contributed to almost 10% of the shipments during the quarter.

Exhibit 1: Russia Handset and Smartphone Shipments Market Share in Q2 2017

Source: Counterpoint Research Market Monitor Q2 2017

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Analyst Contacts:

Tarun Pathak
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Minakshi Sharma
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minakshi@counterpointresearch.com
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Russia Handset Market Q4 2015: Alcatel One Touch Jumps To Top Spot In Russia

According to the latest research from Counterpoint’s Market Monitor program, in Q4 2015 (Oct-Dec), Russia’s mobile phone market grew by 8% annually. The growth in the market resulted in significant shifts in the competitive environment during the quarter.

The following are the key findings of the competitive environment in Russia during 4Q 2015:

Russia Mobile Phone Market 4Q 2015

The Russia market registered a strong comeback in second half of 2015, but still declined for the full year due to very weak first half 2015 as the weak Ruble and other macro factors affected the overall economy.
The Russia mobile phone market grew by 8% annually and 27% sequentially during Q4 2015.
Smartphone shipments remained almost flat registering a 1% growth annually though up a healthy 13% sequentially.
The Chinese TCL-owned brand, Alcatel One Touch, became the number one mobile phone brand during the quarter, surpassing Samsung, thanks to stronger demand for its feature phones in Q4 2015.
The biggest domestic Indian brand, Micromax, which expanded its operations in Eastern Europe a couple of years ago, is now reaping the benefits of distribution and marketing as it captured the third spot for the first time ever with 9% market share.
However, Samsung led the overall smartphone market during the quarter with a market share of 17%, though down from 21% a year ago.
Lenovo raced to the number two position, with strong demand for its entry-level portfolio, capturing 11% share, followed by ZTE which climbed to third spot.
Apple saw demand for its iPhone slow due to the weakening economy and stronger Ruble, making it quite an expensive offering. However, the Cupertino vendor still maintained its position in the top five smartphone brands in Russia in Q4 2015.
Fly Mobile, which has enjoyed success in last three years in Russia, becoming one of the most popular mobile phone brands, also lost share at the expense of the upstart Asian brands. But it still maintained its position in the top five rankings in Russia.
Russian operators such as Megafon and MTS have raced ahead in 2015 to expand their 4G LTE footprint. However, only one in four smartphones sold were LTE capable. There is consequently a lot of room for LTE shipments to grow compared to other emerging markets such as India where LTE smartphone shipment demand has skyrocketed in spite of there not being any meaningful LTE coverage.
Russia’s smartphone market has seen strong recent traction from Chinese brands, which have expanded to new geographies as their home market saturates.
Chinese brands captured close to 30% of the total smartphone market during the quarter.
Close to sixty brands are competing in the market. Some of the key local brands to keep an eye on include: Dexp,BQ and Prestigio.

Exhibit 1: Russia Mobile Phone and Smartphone Shipments

Source: Counterpoint Research Market Monitor Q4 2015 Report

The comprehensive and in-depth Q4 2015 and CY 2015 Russia Market Monitor is available for subscribing clients. Please feel free to contact us at analyst@counterpointresearch.com for further questions regarding our in-depth latest research, insights or press enquiries.

The Market Monitor research is based on sell-in (shipments) estimates based on vendor’s IR results, vendor polling triangulated with sell-through (sales), supply chain checks and secondary research.

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