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Friday, 01 May 2009 04:01

Bad news for cellphone vendors: sales in record decline

Market Research firm Strategy Analytics says that global mobile handset shipments recorded their greatest decline in the industry's 27-year history: 13 percent between Q1 2008 and Q1 2009. IDC thinks the decline was even greater, almost 16 percent.

Alex Spektor, analyst at Strategy Analytics, said, "Global handset shipments fell to 245 million units during Q1 2009, down a huge 13 percent from 282 million units a year earlier. A global economic downturn and cautious de-stocking by retailers caused the slowdown." IDC put Q1 2009 shipments at 244.8 million, very close to the figure Strategy Analytics,  but had Q1 2008 numbers considerably higher at 290.8 million, hence the much bigger decline.

Neil Mawston, director at Strategy Analytics, said: "Shipment growth contracted for all the top five major vendors, forcing some of them, such as Nokia, to rein in costs and slash thousands of jobs. However, one bright spot was found among the smartphone specialists. Apple, for example, more than doubled its volumes year-over-year due to healthy demand for its wildly popular 3G iPhone."

According to Strategy Analytics, Apple shipped a better-than-expected 3.8 million iPhones worldwide in Q1 2009, up a healthy 123 percent from 1.7 million units in Q1 2008. In the touchphone stake's Apple's 3.8 million iPhone shipments exceeded those of one of its main touchscreen rivals, the Nokia 5800, which recorded slightly lower global volumes of 2.6 million units during the quarter.

(Nokia has been trying to drive home the company's ability to withstand the iPhone phenomenon. CEO Olli-Pekka Kallasvuo hailed the Nokia 5800 Xpress Music devices as a "great success", saying: "We estimate that this smartphone alone accounts for around 20 percent of all touch screen devices sold worldwide.)

And among the 'Big Five' vendors, Samsung was the stand out performer "Samsung's global market share hit an all-time high of 19 percent. Its success has been driven by an attractive portfolio of handsets for the high-growth touchscreen and QWERTY messaging markets.," according to IDC. IDC noted that Samsung had "returned to double-digit profitability to start the year, resulting from improved operating efficiencies and a favourable product mix for the quarter."

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However this 'success' was achieved though lower sales shrinkage than its competitors, not through growth. IDC had Samsung's sales volumes declining by only 0.9 percent against market leader Nokia's 19.3 percent and Motorola and Sony Ericsson's massive 46.4 percent and 35.0 percent respectively. These changing fortunes boosted Samsung into second place with a market share of 18.8 percent after Nokia's 38.1 percent, according to IDC, whose figures aligned closely with Strategy Analytics.

Amid the gloom IDC saw a bright spot in the smartphone market, noting that, globally, sales were up four percent and saying "Mobile operators have become progressively more open to raising subsidies within this segment as dependence on data revenue has increased as a result of reduced consumer demand for new handsets."

Both research firms saw smaller vendors gaining market share at the expense of the big five taking their Q1 2009 share to 22 percent from Q1 2098 share of 18.9 percent (IDC) and 16.5 percent (SA). Another research firm ABI, notes that they " shipped 80.5 million units last year, a small fraction of the global total." It adds that they "face significant challenges when seeking greater market share. They are competing against the Tier 1 giants of the industry, which together control about 70 percent of the global market. They are also trying to differentiate themselves and create recognisable brands."

ABI analyst Michael Morgan said, "Most Tier 2 handset vendors are Chinese, Korean, and Japanese. Many have tried to expand beyond their home regions through international partnerships but with mixed results. Some have succeeded, but often a variety of factors, intensified by global recession, is forcing vendors to retreat to their home bases... They're in the bunker now, but within the next two years they'll have to come out, because in every region except Japan, the big players – the Nokias, Motorolas, and Samsungs – will be coming in with a vengeance."

To counter this challenge ABI says they will need to get out and into emerging markets suited to the kinds of phones they make. "Those making low-cost phones might consider Latin America. For high-tech, there may be space in the Japanese market – Pantech has had some success there. The good news is that in the high-margin smartphone segment, the arrival of the open source Android OS has lowered the entry threshold, and technically proficient vendors may be able to put their own stamp on the smartphone concept."

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