Why Are Smartphone Companies Increasing Prices?

Recently, Realme and Xiaomi have increased the prices of their smartphones. Now, homegrown smartphone maker Micromax has joined the wagon and increased the price of the In 2B device, which was launched last year in India. The price hike is not that high, but more companies are expected to follow the same.

Why Are Companies Increasing Prices?

It is worth noting that smartphone shipments have been increasing and are expected to grow further in the coming months. But one should not forget that shortage of components is forcing smartphone companies to increase prices.

"Increasing costs will be challenging amid limited component supply, rising shipping charges, and a tough macroeconomic environment. In the short term, vendors will bear the impact of supply chain disruption and will be conservative about raising prices," said Canalys Analyst Sanyam Chaurasia.

"But the component shortage also brings another risk - regional deprioritization - as brands look to allocate their limited supplies of devices to more lucrative markets," he added.

Meanwhile, another research firm Gartner pointed out that chip shortage has not affected the industry as demand and supply are stable. The firm added that this might change in the coming months and companies will increase the average selling price of devices.

"We could see a 4-5 percent increase in price for older models as there is a shortage of peripheral chipsets - display driver IC (DDIC), power management (PMIC), and so forth," said Neil Shah, vice president of Counterpoint.

"Though for newer models, OEMs (original equipment manufacturers) have more flexibility with the bill of materials (BoM) costs to absorb the 3-5 percent increase across the product design and price it accordingly," he added. It is important to note that consumer sentiments are not in a good shape and is expected to affect further due to COVID-19 cases are increasing in India.

Furthermore, the 5G smartphones have become really popular in India and people are shifting to the upcoming technology and users are willing to migrate on the same network. However, one should not forget that 5G is not in India, so there are chances that the cost of the devices might increase further.