The easing of sanctions and a more supportive economic environment, particularly from mid-2016, will shift the Iranian consumer electronics market to a higher growth trajectory, according to a new report.
The main reason for this is the increasing supply of new devices. Domestic spending growth is above the historical trend, as vendors tap low device penetration rates in key categories such as notebooks, tablets and smartphones. The outlook is, however, still subject to import uncertainty because of ever-changing regulations.
According to Business Monitor International, high import tariffs for devices and an embedded consumer behavior in acquiring devices through informal channels pose downside risks.
PC Market
Local assemblers have a large role in the Iranian PC market as a result of sanctions stymieing the development of the market and retail channels.
Of the global players, Asian vendors have taken advantage of the gap left by US companies not selling directly to Iran. Compared with many markets, there is a much stronger presence of companies such as LG, Samsung, Acer, Sony and Toshiba.
However, there were changes to the market after an August 2013 decision to lift restrictions on selling consumer electronics to Iran. For instance, Apple lifted restrictions on those consumers buying devices with the intention of taking them to Iran. It is likely that there will be significant changes to the market with the easing of sanctions.
The nuclear deal in July 2015 marked a watershed for US vendors' direct involvement in Iran. In July 2015 it was reported that Apple was already in talks with Iranian distributors regarding the creation of a network of premium resellers in Iran—in a structure similar to the one it operates in South Korea.
The risk posed by lingering US sanctions and the complexity of compliance, it has been suggested that a deal could take as long as until late 2016 to come to fruition. evertheless, the rescinding of sanctions is not a panacea for vendors hoping to tap the potential of Iran's PC market.
BMI highlights several important factors impacting the computer market prospects. High tariffs and the government trade embargo have a significant impact on the market, which remains dominated, for instance, in the desktop segment, by local assembly.
Until now, the lack of international production and imports has led to growth in the manufacture of locally-made computers (predominantly desktops) and any erosion of their advantages will be contested.
The easing of sanctions will have a marked impact on the competitive Iranian landscape, as US vendors compete again and the product mix shifts further to notebooks and tablets as local assembly becomes less prominent.
In contrast to the more diverse landscape in most Middle Eastern markets, the direct sales market in Iran lacks full competition, with US vendors such as HP and Apple previously excluded from operations. Some East Asian vendors have operated locally through local partnerships and alliances.
For instance, local electronics firm Maadiran Group began to manufacture LG monitors in Iran over a decade ago and LG has a premium position in the market, while Samsung has a smaller but significant market share.
BMI believes easier access for US and other international brands such as global PC market leader Lenovo will erode the dominance of Samsung and LG in the consumer electronics market.
State Market Share
As the market becomes more competitive, BMI envisages faster unit growth overall and a shift toward notebooks and tablets.
The state segment dominates computer purchases, with a share of more than 50% of the total market. Over the next few years, computer sales should be boosted by government procurement for educational projects and other uses, with e-government initiatives helping to fuel spending, along with privatizations.
There should also be growing investment by private companies, particularly in modernizing sectors such as telecoms and banking. Despite its huge potential, the small- to medium-sized enterprise market will be relatively constrained by its lack of access to investment compared with other countries in the region.
Tablets have reshaped the PC market globally and competitive dynamics since the arrival of the iPad, but due to sanctions on Iran there has been a much smaller impact.
Though our core scenario is for tablet growth momentum to gather pace in Iran and close the gap to its peers in terms of penetration over 2016-20, we believe that there is also potential for form factor evolution and envisage a medium-term blending of form factors through vendor innovation. This will make the Apple-defined smartphone-tablet-notebook distinction more fluid before tablets gain a hold in Iran.
Handsets
Iran's mobile handset segment is forecast to outperform in 2016 and over the medium term to 2020. As a result of sanctions, the smartphone penetration rate is relatively low, estimated at 36% of adults of ages 16 and older at YE15.
There remains considerable potential for market value growth, as 2G handset users upgrade to smartphones, which will drive up the average selling price of total handset sales even as smartphone prices decline—with a further upside if high import tariffs are scaled back over the medium term.
