Coronavirus impact on secondary device market could leave industry in short supply

Telecoms.com periodically invites third parties to share their views on the industry’s most pressing issues. In this article, Biju Nair, President & CEO, HYLA Mobile, looks at the impact the coronavirus could have on operators, OEMs and insurers warranty and device protection program liabilities.

The impact of the coronavirus is truly shocking. It has had a significant impact on most global industries, especially those reliant on Chinese production lines. The global mobile device market is a major example. China alone produces 70 percent of all smartphones sold. Leading brands such as Huawei, OPPO, Xiaomi, and Vivo have all been adversely affected. All models of the iPhone are also manufactured in China. South Korea has also been hit by the coronavirus as well, with Samsung and LG also forced to temporarily close factories.

China and South Korea will soon recover. Shipments of new devices will continue once these factories re-open and the necessary parts can be sourced again. But what wider impact will we see?

As far as new devices are concerned, with the cancellations of mass gatherings continuing around the world, it’s safe to say the opportunity for major new smartphone launches over the coming months will temporarily diminish. While this is hugely inconvenient for operators and OEMs trying to capitalize on broader 5G availability and drive upgrades, it is just a setback. These upgrades will take place eventually and these new revenues will be realized.

What perhaps is more significant, is the growing shortage of refurbished smartphones that operators, OEMs and insurance companies increasingly rely on to manage warranty and device protection programs. The economics of these programs rely on these stakeholders having access to refurbished devices as replacements, to policy holders, as and when they need them.

Refurbished smartphones are typically collected by operators, retailers and OEMs through device trade-in and buyback programs and then sent for refurbishment and repair. As cost and dependency on smartphones have risen, so has the popularity of device protection programs. The opportunity for operators, retailers and OEMs to unlock the latent value in used devices and pass it back to consumers as credit towards new devices, has accelerated upgrade cycles and made new smartphones more affordable. Critically, many devices collected are used by operators and OEMs to support wider warranty and insurance programs. If new devices aren’t being sold, pre-owned devices aren’t being collected.

Apple has already warned of a shortage of refurbished devices and has expressed concerns that it might not have the available stock to meet its obligations related to its device protection and warranty programs. This has as much to do with refurbishment and repair facilities within factories being in lockdown, as much as slowing new device sales. Thankfully, the picture for Apple is already improving. Its suppliers are re-opening their factories and all its stores have re-opened in China. This will help accelerate pre-owned device collections in the region while parts of Europe and the U.S. start to experience temporary lockdown.

OEMs, operators, retailers and insurance companies will be relieved to see the global new and secondary device supply chain spring back to life. A shortfall in refurbished device availability means warranty and device protection programs need to be propped up by the circulation of new smartphones to maintain customer satisfaction and meet their obligations. The high price points of new devices can rapidly see these programs become a profit drain if they are run on this basis for too long.

It is therefore likely in the short term, that operators, OEMs and retailers will offer additional promotions tied to trade-in and buyback programs, in order to boost the sale of new devices and replenish the supply of those that can be refurbished and redistributed. These incentives will encourage subscribers to upgrade while surrendering their current device during the process. This will meet short-term need for new revenue, and refurbished devices to honor warranty & device protection programs, and maintain profitability of these programs, while the global device ecosystem finds its feet again.

HYLA Mobile is a leading provider of software technology and services for mobile device trade-ins and reuse solutions. As President and CEO, Biju Nair is responsible for the execution and strategy of HYLA’s global business. He leads the company’s expanding effort to grow the company’s global strategic vision, with a focus on bringing new technology solutions and new business opportunities to the forefront. He is responsible for all aspects of ensuring the company’s short and long-term goals are realized and that the corporate strategy is secure and engaged.