Mobile TeleSystems Public Joint Stock : The Russian Smart Device Market in Q2 2020

While the coronavirus situation has impacted nearly all sectors of the economy, retail in particular has faced some of the biggest challenges. With a nationwide network of over 5,000 MTS stores, our focus has been staying nimble, flexible, and agile as we adapt to the situation on the ground, while keeping a laser-sharp focus on helping ensure customer safety and care in line with public health guidelines. And with social distancing measures easing this summer, we are beginning to see some positive early indicators of retail recovery.

According to MTS analysts, following a significant decline in April, the Russian smart device market kicked off a recovery in May that further accelerated in June, with unit sales of smartphones up 13% year-over-year in the final month of Q2. Combined with the solid figures seen in Q1, we estimate that in total 13.6 million devices were sold in Russia in the first half of 2020, with the market growing 5.1% year-over-year in H1 to reach 223 billion rubles.

MTS analysts attribute the rebound to multiple factors. First, while consumers avoided shopping in early Q2, they still planned to upgrade their devices and merely delayed major in-store purchases. As foot traffic returned in June, that delayed demand was converted to a temporary surge in sales. Second, ongoing concerns around travel has led many families to cancel summer vacations, which has freed up a greater share of their wallet for shopping and entertainment. According to MTS Bank data, Russians' travel spending in June was less than half of typical historical levels. We have also seen a greater share of cash purchases, with POS financing for smart devices in Russia down around 40% year-over-year in Q2, on our estimates. In short, while consumers are staying close to home, they are hitting the streets and ready to spend.

Although recent indicators this summer have been promising, in general the second quarter saw significant headwinds given the social distancing measures that went into effect in March. On a full-quarter basis, we estimate the bump in sales in June was more than offset by drops in April and May, which saw 21% and 4% fewer smartphones sold in Russia versus the respective months in 2019. In total, MTS analysts assess the Russian smartphone market declined by 2.3% year-over-year in Q2. Unit sales were down slightly more (-2.9%), reflecting a continuation of the long-term trend toward higher-end devices and longer upgrade cycles, with ticket prices averaging around 16,400 rubles in H1.

'As part of our focus on corporate social responsibility, we have rapidly adjusted our retail operations in line with social distancing guidelines to help ensure safe, accessible support for our customers. We have also significantly strengthened our ecommerce presence, expanding and speeding up fulfillment, while also launching contactless SIM card delivery with in-app registration. Thanks to the efforts of our team, we saw online sales up 2.5 times in Q2 2020,' said Inessa Galaktionova, First Vice President for Telecommunications. 'Currently, our retail stores are operating normally and in line with public health guidelines. Sales have now recovered to roughly the levels we saw last year.'

Mid-market devices continued to be the most popular choice among Russian consumers, with more than 80% of smartphones sold priced below 20,000 rubles. The fastest-growing demand is for devices priced 10-15,000 rubles, which were up 14.4% year-over-year in Q2 in unit terms.

On the manufacturer side, Apple led with 30.8% market share in Q2, followed by Samsung (24.7%), Honor (18.1%), Xiaomi (13.7%), and Huawei (6.1%). In unit terms, Honor was the top brand with 25.5% of smartphones sold, followed by Samsung (22.2%), Xiaomi (19.8%), Apple (9.3%), and Huawei (8%).

Overall, the top-10 most popular models sold in Q2 were:

1. Samsung Galaxy A51
2. Honor 8A
3. Honor 20 Lite
4. Samsung Galaxy A10
5. Honor 10i
6. Honor 10 Lite
7. Xiaomi Redmi 7A 16 GB
8. Samsung Galaxy A30S
9. Xiaomi Redmi 8A
10. Xiaomi Redmi 7A 32 GB