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Gray market for mobile phones helps low-cost flash memory

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Shipments of gray market cellphones are set to amount to 210 million units in 2012, representing 13 percent of the global mobile handset business, according to IHS. While this is down from the peak year of 2011, when gray market totaled 250 million units, shipments are set to remain high, amounting to 189 million units, or 11 percent of the global cellphone shipments in 2013. The gray market business is dramatically larger than it was just three years ago in 2009, when shipments amounted to 145 million units.“Gray-market phones represent a huge segment of the overall mobile handset industry,” said Michael Yang, senior principal analyst for memory & storage research at IHS. “For manufacturers of these phones, keeping up with consumer trends while maintaining low costs will continue to be a concern as they fight to remain viable in a fiercely competitive market. As a result, the adoption of inexpensive flash memories like eMMC and SPI NOR have been a key trend in the segment for gray-market handsets.” Gray AreasGray-market handsets are cell phones manufactured in China that are not recognized or licensed by government regulators. Makers of these products generally do not pay China’s value-added taxes and, therefore, profit illegally from their participation in the market.The gray market for mobile handsets thrives mostly in developing countries where a large underground economy exists and where people are keen to obtain phones at low prices bearing desired functionalities—often those copied from authentic handsets made by name brands.In China, for instance, gray-market handsets include counterfeits as well as so-called white-box units in which any logo can be slapped on a ready device. Frequently these white-box phones also feature smuggled chips, lack official certification and use fake international mobile equipment identity (IMEI) codes otherwise used to distinguish genuine handsets.Asia, including China, remained the top opportunity, accounting for 62 percent of the gray market in 2011. Growth sectors like Indonesia and Vietnam are also moving beyond low-cost gray market handsets into gray-market feature phones, which are considered a step above low-cost handsets because of slightly more sophisticated functionalities.The next two growth segments for the gray market are Latin America, which skews more toward low-end smartphones, as well as the Middle East/Africa (MEA) region, where entire new populations are being exposed to mobile devices for the first time.As a whole the gray market for handsets is also steadily moving upstream, with smartphones rising from 1.4 percent of gray-market handset shipments in 2011 to 6.0 percent this year. Feature phones, however, will continue to command the lion’s share of gray-market handset shipments this year, at well over 60 percent. Gray MemorieseMMC delivers the high-density storage needed by the latest smartphone operating systems, at the same time also providing time-to-market advantages and less design effort. For its part, SPI NOR can claim cost advantages over traditional parallel NOR as it further reduces the total bill of materials for gray-market handsets.Overall, the gray market for handsets is expected to retain an important presence in several lucrative geographies that device manufacturers are increasingly cultivating.

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