Amazon's Cheap Smartphones Target India Market and Potential Big Gains

The e-commerce announced that it will be offering inexpensive cell phones via an agreement with Motorola and BLU.
By Kat McKerrow ,

Yesterday, Amazon (AMZN) - Get Report launched its private label for groceries and announced that its second Prime Day -- an online shopping event where consumers can find deals -- would take place July 12. 

But no less importantly, the company also announced that it is jumping back into the cellphone market, featuring exclusive smartphones at a discount thanks to a subsidizing program with Motorola and Florida-based BLU.

The company finished trading at $715.62 a share -- roughly flat to Wednesday's close.

Amazon last experimented with its own phones in June 2014, when it unveiled the Fire Phone. In the U.S., the Fire was sold through an exclusive coverage contract deal with mobile carrier AT&T. However, in August 2015, following tepid critical reviews and dismal commercial reception, Amazon stopped selling the phone. The company took a $170 million hit in the fourth quarter of 2014 from costs associated with the phone's manufacture. Although the starting price was low -- and Amazon kept lowering it -- the Fire just didn't catch on.

For this foray into the cellphone market, Amazon will be taking a different route, subsidizing phones from other manufacturers. The "Amazon exclusive" Android phones, which are cheap, will cost about $50 less than their suggested retail price. Consumers will be able to pre-order Motorola's BLU R1 HD for $49.99 and the Moto G for $149.99. For a limited time, customers will be able to purchase a Moto G4 for $124.99, an even deeper discount. 

However, there's a catch: The Android-based phones are unlocked so users will have to contest with Amazon ads on their lock screens, not unlike what they see on Amazon Kindle e-readers.

For many Americans, $50 may not seem like much of a discount for dealing with Amazon's marketing. However, there's a more relevant, and potentially larger market for these discounted phones: India.

The subcontinent represents a gigantic market for smartphones. According to analysts at Statista, American first-time mobile phone purchases are forecast to taper by 2021, to 90 million. Most Americans already have smartphones, and any further purchases will be for replacements.

However, in what Statista dubs the "Asia-Pacific" region, first smartphone sales should skyrocket with as many as 1.7 billion units expected to sell within that same time frame. This year alone, India expects smartphone sales to grow by 25%. This is clearly where

big profits

 will be made.

Apple (AAPL) - Get Report , king of the smartphones in the U.S., has had difficulty breaking into the India market. The company has made inroads in courting the Indian government, which maintains strict control over imports. However, it hasn't been easy: Until recent changes to commerce ministry policy, it was doubtful if Apple could even open its branded Apple Stores in the country (under current policy, a minimum of 30% of products need to be manufactured in India).

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Plus, budget-conscious Indians are reluctant to spend more than $150 on a cellphone. That makes the iPhone's $700 price tag seem especially unaffordable.

Apple presented the Indian government with a plan to sell refurbished iPhones in the country, but even this proposal was met with hostility. "We are not in favor of any company selling used phones in [India], however certified they may be," said commerce minister Nirmala Sitharaman.

Can Amazon pick up Apple's slack, then, in selling highly affordable cellphones in India?

The e-commerce giant's partner in this venture, Motorola, seems to think so. Amit Boni, head of Motorola Mobility India, said back in May, "We have witnessed tremendous growth in the e-commerce market, and it will continue to be the dominating channel for us as we bring new products to the India market. [Amazon] is one of the best online marketplaces in India, and we are glad to announce that we have exclusively partnered with Amazon India for our next Motorola smartphone."

Regardless of how these phones sell at home or abroad, Amazon still represents fantastic opportunities for investors. The company is a true game-changer and has transformed the way people worldwide shop for everything. Pick up shares on any dips in price.

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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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