The grey market for cellphones will contract for the second consecutive year in 2013, with worldwide shipments dropping by 12%, as both makers and buyers of these handsets turn to branded products.
This is according to a study by analytics provider, IHS, which notes that shipments of grey-market cellphones reached their peak in 2011, at 250.4 million.
However, IHS says, the market began to shrink last year, contracting to 221.5 million units, and it believes the deceleration will continue this year to 194.6 million units, followed by another steep fall to 173.8 million units in 2014. The decline will continue at least through 2017, when shipments will dwindle to 133.9 million units, the firm adds.
According to IHS, the grey market overall is impacted by an accelerated decrease in the sales of lower-end handsets, known as feature phones. And while the ultra-low-cost handset and smartphone segments of the grey market will continue to grow until 2014, expansion in these segments won't be enough to counteract the drop in the feature phone sector.
Grey-market handsets, as defined by IHS, include counterfeit products like fake iPhones as well as white-box cellphones on which any logo can be readily imprinted. White-box handsets are often illegal despite sporting a logo because they use smuggled chips, lack official certification, use fake International Mobile Equipment Identity codes, and usually are trafficked through Hong Kong to avoid valued-added taxes from being imposed on the devices.
"A combination of supply and demand factors is causing demand to decline for grey-market cellphones," says Kevin Wang, director of China research at IHS. "On the demand side, the consumers in emerging markets who used to be the major purchasers of grey-market cellphones increasingly are preferring brand-name handsets. On the supply side, some grey-market handset makers have become branded manufacturers in order to promote their own names in developing countries."
Furthermore, IHS says it is becoming harder for grey-handset makers to differentiate their products from a sea of counterfeits and remain profitable.
The analytics firm also notes that Asia-Pacific, including China, is the largest grey-handset market in the world, and the devices also have a strong presence in India, Vietnam, Thailand, Pakistan, Indonesia and the Philippines. The region, however, is not immune to decline, and the Asia-Pacific grey-handset market will contract this year, to 103 million units, on its way to 53 million units by 2017.
The Middle East and Africa in 2012 surpassed Central and Latin America as the second-largest grey-handset market, driven by increasing demand from countries such as Nigeria, Turkey, Egypt and Iran.
Grey-market handset shipments this year to the Middle East and Africa will decrease slightly to 38.2 million units, says IHS. Central and Latin America together represented the third-largest grey-handset market, with 37.3 million units forecast to be shipped in 2013.
In China, the world's largest handset market, total cellphone shipments from Chinese companies will grow to 840 million units in 2013, up 2% from 2012. However, shipments will begin to decline starting in 2014, IHS believes.
Within the Chinese smartphone space, shipments this year will grow to 361 million units, offsetting the decrease in shipments of feature phones from the Chinese companies. China shipments this year will also grow in the ULCH segment, driven by demand from low-income consumers in developing countries buying the Chinese handsets.
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