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Realme says govt unlikely to push Chinese phone cos out of sub-Rs 12,000 segment, Telecom News, ET Telecom


 Madhav Sheth, CEO, realme India, VP, realme and President, realme International Business Group.
Madhav Sheth, CEO, realme India, VP, realme and President, realme International Business Group.

Realme, India’s second ranked smartphone brand, doesn’t expect the Indian government to take any steps that would push Chinese brands out of the under-Rs12,000 segment, its India CEO Madhav Sheth said. Speaking to ET’s Subhrojit Mallick, Sheth said India is focusing on three things: compliances, the ecosystem to be brought in India, and the exports, and the company, headquartered in China, is striving to adhere to all three. He said the smartphone industry needs to engage in ethical lobbying to make the government understand the way it functions and avoid conflict situations. He blamed the tepid demand environment on the lack of innovation by its rivals. Edited excerpts: Now that the auctions are over, what is the strategy for marketing 5G smartphones going forward?

We already have more than 5 million 5G devices since 2020 when we launched the 5G smartphone in India. I see the auction was very optimistic. Jio and Airtel, I think they are gung-ho about it. It’s extremely good to feel that I already have 5 million people using my 5G devices in India at this point of time. So when the network is on, there will be around 5 million people who will be able to use it. We have already started the rollout of updates after understanding what the network options were given by the telcos. So we have already started rolling out the OTAs to our phones, and we have already started testing with operators post the auctions. Even though they are 5G-ready phones, we have to make sure the bands are all connected and working. Before 5G rolls out, we want to make sure 80% of the users already have the latest OTA updates.

What are the 5G bands that will be key to delivering 5G in smartphones? Do all Realme 5G smartphones support them?

There are four or five key bands which everyone is working around, and we have support for all the bands in our phones, whichever has been auctioned in India. We are quite gung-ho about it. I think Jio and Airtel are looking to scale it up and if you really think about the way they are planning it, it will be a great opportunity not just for hardware manufacturers, but for the entire ecosystem.

Do you feel the consumers are now aware of the benefits that 5G offers in smartphones?

There are not too many use cases around 5G smartphones. It was similar to when the transition from 3G to 4G happened. If you remember then, a lot of people used to ask why do we need a 4G device, but now people cannot function without the Ubers and the Olas and the Zomatos of the world. It wouldn’t have been possible in the 3G era. So I think 5G is going to bring a host of opportunities, mainly through AR, VR, AI and automation and I think the virtual worlds will become closer. What is the job of the communications industry? It’s bringing the people closer. I think that’s what 5G is going to do more efficiently. So use cases of AR, VR and everything will require a lot of computing power in smartphones right?

The entire ecosystem will come into place. The developers, operating systems, programmers – everyone will have a new set of opportunities with the speed. It’s not just about download speeds, but also about uploads and a continuous connection. I think everything will go to the cloud with 5G. People will hardly use their storage on phones and laptops, and completely move to the cloud. Cloud gaming is already popular. With the cloud, things like personalised photographs, data and everything

Realme was recently crowned as the number 2 smartphone brand in Q2 by IDC. Can you summarise your journey to reaching number 2?

It was easy. The other faltered. We were doing the same thing. If you see, our numbers haven’t changed much. These numbers are just an output of all the things, and there’s hardly a difference over 3-5% between number one and number four. This is what I predicted last year, when market share of the number 1 brand was around 35%, number 2 was at 22%, number 3 was 17% and number four was 12%. I said next year there is going to be consolidation where everyone will be around 15-20%. That’s a healthy market functioning where there are 5-6 brands controlling 70-80% of the market. I think this will keep on changing quarter to quarter depending on the supplies, demand, launches, product portfolio, consumer behavior pattern. This is not going to be an infinite story where I will always be at number 2. It’s going to change every quarter, depending on various different functions.

So the growth is not very sustainable?

I don’t think so. When the gap is just about 1-1.5%, it’s very difficult to continue to sustain that position. The only thing I can say is we will continue doing what we are doing at best. We never started in this industry to be number 1 or number 2. I wanted to make sure that consumers get the best experience. When 4G launched, everyone was rushing towards a 4G device. But by the time 5G is launched, we already have 5 million devices and will be bringing affordability into 5G. We are focusing on bringing 5G devices under Rs 15,000, trying to bring it down to around Rs 10,000-12,000. So this is what we are trying to do by the time 5G is already mature enough in the market, and the use cases come in for the people.

How difficult is it to make an under-Rs 10,000 5G smartphone today?

It is difficult right now. The cost of the components and the dollar prices are always increasing. So even if you want to bring a 5G phone under Rs 10,000, you will really have to compromise on a lot of specifications, which I don’t think the users are ready for, at this point of time. Just having a 5G device with no other functionality would make no sense. It may be a game-changer, but won’t be a winner of the segment. It can be a good marketing call, but not good for users on a day-to-day basis. It’s like an empty box with a 5G board. Users are looking for a better battery, better camera, better designs, and this cannot be compromised. While many may say the need 5G, subconsciously they also need a good camera. I may go to buy a phone thinking I need at least a good battery backup, but subconsciously, I’d want a good camera, it needs to be fast and the like. We also have to consider these subconscious thoughts while we are making smartphones.

So 5G technology will remain expensive for the masses?

No, I think we have already brought one around Rs 12-13,000 and with Realme 9i 5G launching, I think the segment will see a lot more action. We are quite optimistic, and by Diwali, I think a lot of brands will target that particular price point.

So the Rs 10-15,000 range is now the next battlefield for 5G smartphones?

I can clearly forecast that the Rs 10-15,000 segment will be dominant with 5G smartphones. By the end of this year, you will see 5G dominate this segment. We are also working with telcos to see how we can bring more affordability and adoption of 5G phones.

Are there plans to tie up with Telcos to offer specialised plans or something?

We are already working with telcos closely for testing 5G services, along with exploring bundling offers for consumers. We have already started doing that with Airtel for our C-series smartphones. These are data add-ons, cashback, etc. Any Airtel user gets Rs 750 off when buying the Realme C30. We will try this out with multiple devices.

What is the next growth avenue for Realme, now that you have hit number 2.

We are looking to sustain in the segments where we are already present. Like in AIOT, with 5G coming into the picture, there would be a host of opportunities in segments like audio wearables, tablets, laptops and TVs. These are the first things where we want to move to smart everything. We expect better connectivity with 5G between the devices and more talkability. So I think a host of AIOT ecosystems will come up very fast and these five segments will be the first ones to get upgraded.

Since most IoT devices work on Wi-Fi, are there plans in place to enable 5G support in the IoT devices?

It’s too early to comment on this, but yes, I think with the 5G ecosystem coming into place, everything conventional will move to smart for sure. There are a lot of things I’m planning, but it’s too early to comment. We have already rolled out a tablet with 5G, where normally people use it through WiFi. What I believe is that smartphones will become the hub of the home and it can connect to multiple devices.

Do you export your smartphones from India?

We started exporting from India to a few South Asian countries, and Nepal from india. We have exported more than 200,000 devices till the first half of 2022. The volumes won’t be much, but we are exploring
more.

With the chipset shortage now easing, are the input costs going down for manufacturing smartphones?

There are more than 300 components that goes into manufacturing a smartphone, plus there is a dollar fluctuation. Last year, the dollar value was at around Rs 74. Today it’s Rs 78, so already 8% up. In this industry where every percentage counts, moving up slightly in dollar value, we get screwed trying to hold on to the same price points. It’s extremely difficult doing that. You have to cut corners to manage the same pricing expectations and aspirations of the consumers. So sometimes we have to make a choice with a particular price point. Sometimes we don’t cut corners at a particular price point.

Have the margins also gone down?

You know it’s tight because of the dollar fluctuations. We have to make sure we are healthy and sustainable because our story never ends after selling a phone. We offer three years of service to consumers in terms of the Android updates and Google patch updates. All these things are a cost to the company.

We are seeing smartphone brands moving up the price ladder, but the volumes are still in the budget segment. What’s the strategy there?

The belly of the Indian market is still below Rs 15,000, but because since last year, the only chipsets available were 5G, and everybody had to move to a 5G chipset because 4G chipsets were not available, so the price points automatically had to go up. It was not the brand’s conscious call, but a baptised one. We did not have a choice. If you only have 5G chipsets to work with, your phones will automatically go above Rs 15,000.

We also don’t see too many 4G chipsets launching either..

There will be no 4G chipset anyways, because everybody’s moving to 5G R&D. When the resources are being allocated to 5G development, why would someone make a new 4G chipset? Naming a new 4G chipset will not change the perception of 4G. So it’s better to upgrade the performance of the phone. But now more than 80% R&D resources have moved to 5G. This means that no new research will be done on 4G. So if the consumer needs to up their game, they will have to move to a 5G phone. So it’s the brand’s responsibility now to work to bring more affordable 5G devices. To do that, we have to bring more affordability options, Bring banks into the picture, tie up with operators, and take ten different routes to make sure it’s affordable to the consumers.

So is the mass segment no longer profitable for smartphone brands in that case?

It depends. This year, it may not be because the entire market has moved from a supply shortfall market to a demand shortfall market. No one saw that coming. We could not anticipate it would be this fast, because any such change takes some time. So this was almost like a V-turn, not even an U turn. We were still struggling to fill the gaps from supply shortage, and suddenly, as you try to bridge that gap, the demand goes down.

So how is Realme managing this sudden change?

We had to take a lot of steps. Expansions had to be reviewed, production had to be controlled to make sure that we bring the latest technology to the consumer. We are launching a few latest smartphones this Diwali to make sure people don’t just have to buy the older phones at cheaper prices, because some brands will want to liquidate the stocks.

With demand slowing down, did you have to face inventories piling up?

For certain models, yes. We are in the same ship, but I can definitely say we are in a much better shape and situation. We always have our own struggles. Hence we are launching new models. The Realme 9i 5G launches now, and there will be three or four models before Diwali, across the mass and premium segments.

Realme has also moved up to the premium segment. Do you see a lot of conversions with that strategy?

It’s a step-by-step approach. We cannot expect that one model is going to work miracles and wonders. You need to have patience, and keep bringing disruptions in innovations. And also let people know that premium phones are not just about buying logos, but it’s also about buying a technology piece. People buying phones above Rs 35,000 are more loyal towards logos. They are not technologically driven towards specs.

So how do you change that, or become a logo to aspire for?

It’s not always that. Brand is something which is always a good thing to build for a person like me sitting in this position. But I believe technology should not always be driven as a brand thing only. It should also be perceived as a thing that technologically help make your lives easier, rather than just being a piece of admiration or a piece to build your social status.

But is the strategy to go premium working for you?

We have already launched three to four phones in the premium segment, and we won’t be launching them if people aren’t buying. But since only 20% of the market is buying premium phones, we don’t expect volumes. Not even higher margins, because when we are trying to build that particular category, we are also bringing innovation and differentiation. We are not just trying to replicate things. Brands tend to keep a higher margin when launching high-end phones to make up for the affordability cost for the budget smartphones which forms the belly of the market. And affordability is a cost to the company.

What in your opinion is causing the demand to taper right now?

There’s no reason for consumers to upgrade a phone. If you already have a 4G phone, and going to buy a 4G smartphone again, that’s not a good reason to upgrade. So unless your phone is damaged, you have no other reason. So there are no strong reasons for consumers to upgrade a phone. From the brand side, they are trying to liquidate their old stocks, without offering new innovation or technology, just providing offers and keeping higher margins. That’s their only model and they are being greedy. So why would consumers just want to keep buying the same thing? Consumers also did not feel the need to move to 5G, even though brands had to move to 5G because there was a 4G chipset shortage. So brands had to give them a reason apart from 5G, for them to buy. It may be the camera, the battery or the charging speed.

Because of the tapering demand, did you have to cut down on production in the first half?

No, we were the only brand that grew while everyone else had to lose market share.

Do you expect the demand to now pick up in the festive season?

It’s very difficult to predict right now. But yes, festivity always comes with a spike in sales. But what we cannot anticipate or preempt right now is what would be the level of the spike. We have already increased production. We want to hit the same levels as last year.

The government is pushing brands to set up the supply chain here in India. Is Realme doing anything about it?

More than 70% of the components are manufactured in India. 100% of our phones are assembled in India. Our TVs are made in india. Our laptops are soon to be manufactured here. The components which are getting manufactured in India, the ecosystem is set up by us, to set up the factories. There were more than 50-55 suppliers who have been brought here to open up shop in India to start supplying to us. We need them to help us with the technology transfer. 60-70% of Realme smartphone supplies, like screens, batteries, and internal structures, are currently purchased and manufactured in the country. In our next phase of growth, we also aim to enter into alliances with suppliers and partners to open local factories in India and contribute more to our country’s economy.

The government is also meeting stakeholders to explore options to have a common charging standard in mobile devices. What is your view on the matter?

I think moving towards USB Type-C charging is probably a good move in India. Majority of our phones are already Type-C charging. But a lot of education is also required because in Type-C charging, there are also various levels of charging ranging from 10 watts to 150 watts. In India, a lot of people are still using feature phones.

Considering that the government is increasingly scrutinising the operations of foreign companies operating in India, do you feel it’s harder to do business here now?

No. It’s not that I’m answering it diplomatically, but compliance is one part you should never mix with other factors. You definitely have to obey the laws of the land. I don’t think that should be something you can mix with the geopolitical issues. I think the royalty issues have settled down now. It was clarified by the ministry also after a period of time. So the point I’m trying to say is it’s important for a lot of people to get an understanding of the business. That type of ethical lobbying is extremely important between the brands and the government to understand this particular point. I think the government is taking a lot of initiatives to understand this business.

But the government is also raiding different brands and putting up huge fines on their heads to pay, so doesn’t that create some uncertainty?

See, there are always a lot of things which need to be explained over a period of time. There can be penalties, but maybe I’m not the right person to comment on it because I have not seen what are the type of penalties levied on the other brands, apart from the few bigger ones which were in newspapers, so I’m not aware of it. It hasn’t happened to Realme as of now. Fortunately, it was smooth sailing for us, so I did not have to explain to our consumers about what’s going on.

The government is reportedly working on a way to restrict Realme and other foreign brands from the sub-12k segment. What are your views on this?

The government clarified its stand the very next day the story was published, that there’s no plans as such. The government is focusing on three things, which are compliances, the ecosystem to be brought in India, and the exports. I was aware of this development six months before the story was published. I have been talking to the authorities, and there is no formative response we have received from them. We will focus on bringing the ecosystem to India, bringing the supply chain and increasing exports. We are already following the compliances, we have our factories, we have invested in India, we are doing everything as per the compliance laws. So we do not find any reason for imposing this. But whenever this kind of thing comes up, we are more than happy to give our understanding of the business side and our perspective. That perspective is what we can bring to the table. What are the supply chain benefits? What are the drawbacks if this happens? I got calls from all the brands when the news broke, but I did not pick any of them because I knew this was not going to happen.



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