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28 November 2008


Mobile sales to show low single-digit decline in 2009

Sales of mobile phones to end-users reached more than 309 million units in third-quarter 2008, up 6% on a year ago, according to analyst firm Gartner Inc in its report ‘Dataquest Insight: Market Share for Mobile Devices, 3Q08’. Growth dipped back into single figures, representing less than half the 16% growth rate of Q3/2007.

“The global economic downturn has triggered a three-way battle between Sony Ericsson, Motorola and LG for the third position in the worldwide mobile phone market, which has seen Sony Ericsson emerge as the winner in the third quarter of 2008,” says Carolina Milanesi, research director for mobile devices at Gartner, based in Egham, UK. “It has also affected sales in both mature and emerging markets during the quarter,” she adds. “Replacement sales in particular were affected, while first-time users continued to see the value of acquiring a mobile phone.”

Nokia sold 118 million phones in Q3. It was the first quarter of the year in which Nokia felt the negative effects of the current economic climate, as lower replacement sales in mature and emerging markets impacted its overall sales (with its market share falling slightly from 39.5% to 38.2%). Nokia suffered in the ‘converged devices’ segment. However, analysts reckon that Nokia should be able to improve its market share marginally in Q4/2008 as its new devices come to market, and the holiday season helps to increase overall sales. Nokia remains best-positioned to deal with the current market conditions because of its economies of scale.

Samsung had a very strong Q3, as sales grew 26.3% on a year ago. It continued to take advantage of the popularity of its touch-screen devices — the Tocco and Omnia — as well as an enriched mid-tier device portfolio. Despite delivering a strong sell-in, the firm was also able to burn inventory from the previous quarter. “Samsung is well positioned for the rest of 2008,” says Milanesi. “Although high-end products are under a lot of pressure, Samsung’s advantage is that its products appear to offer better value for money than its competitors.”

Sony Ericsson’s rise to third place in Q3/2008 had more to do with the issues that Motorola and LG faced than its ability to turn around its business after a few difficult quarters. The firm continued to suffer from the weakness in high-end markets as well as the slowdown in replacement cycles in Europe. Despite an aggressive price strategy in Europe, the Middle East and Africa (EMEA), Sony Ericsson built some inventory in Asia/Pacific, which left a much smaller gap between it and Motorola on sell-in numbers. There have been reports of component shortages for the Xperia X1 (Sony Ericsson's long-waited Windows-Mobile-based touch-screen device), so sales are likely to be challenged again. In addition, new products such as the Walkman W705 add to an already crowded music portfolio and might not be enough to win more customers.

Motorola’s market share shrank further in Q3 as its sales fell to 24.6 million units. With no inventory left to burn from previous quarters and a portfolio that remains very weak, Motorola slightly built inventory during the quarter. “The economic environment is particularly difficult for Motorola because its lack of compelling products and competitors’ aggressive pricing called for price adjustments that it cannot afford if it wants to please investors by retaining margins,” says Milanesi. “We expect Motorola’s issues to continue well into 2009, and are puzzled by recent product announcements like the Aura — a $2000 device — that seem to totally ignore current market dynamics,” she adds.

LG’s portfolio remains well positioned to take advantage of the seasonality in Q4 as its pricing is more suited to the current economic climate. The firm was able to burn some inventory it built up in Q2, and sales to end users reached 24.1 million units. However, sales were negatively impacted by the loss of a key contract in India, where LG valued profitability over market share and walked away from a deal that offered a very low average selling price. Sales in Western Europe and North America made up for the weakness in emerging markets and limited the damage.

“All eyes were on Apple’s performance during the quarter as it ramped up the roll-out of its 3G iPhone from six to 51 countries, despite building an inventory of just over 2 million units,” says Milanesi. “Apple was able to return in the top ten vendors ranking at number 7, just under Research In Motion (RIM). We expect that sell-in sales during the fourth quarter of 2008 will reflect this inventory level, especially given the current economic environment,” she adds.

Despite economic pressure and weak consumer confidence, mobile handset sales in Asia/Pacific grew from 115 million units in Q2 to 116.7 million in Q3, up 13.8% year-on-year. However, replacement cycles increased from four to eight months, resulting in either a decline or almost flat sales in mature markets like Singapore, Hong Kong, Taiwan, Korea and Australia, where operators are moving away from subsidies and pushing for longer contract periods in an attempt to generate revenue. Sales in emerging markets like India and China rose due to strong sales to first-time buyers. “We expect the global economic decline and associated drop in disposable incomes to make sales in the region almost flat during the fourth quarter of 2008,” says Anshul Gupta, principal research analyst for mobile terminals at Gartner, based in Mumbai, India.

Sales in Eastern Europe, the Middle East and Africa grew from 56 million units in Q2 to 57.8 million, up 13.1% year-on-year. Several countries in Eastern Europe, including Russia, Hungary, Ukraine and Romania, were hit hard by the financial crisis toward the end of the quarter, but this did not translate into a large downturn in the devices market. “Emerging markets, especially in Africa, continued to display healthy growth,” says Annette Zimmermann, senior research analyst for mobile devices at Gartner, based in Munich, Germany. “We expect the continued economic pressure to have a negative impact on handset sales in these regions in the fourth quarter of 2008, even though consumers will benefit from lower food and energy prices.”

Table. Mobile terminal sales to end-users in Q3/2008 (thousands of units). N.B. Includes iDEN shipments, but excludes ODM-to-OEM shipments. Source: Gartner.
Q3/08 Sales
Q3/08 Market share %
Q3/07 Sales
Q3/07 Market share %
Sony Ericsson
LG Electronics

In Japan, sales to end users were 9.4 million units, the same as Q2 and down 28% year-on-year. “Consumers showed little interest in upgrading their existing devices and, when they did, they tended to purchase standard models rather than high-end ones with the latest functions,” says Atsuro Sato, research analyst at Gartner, based in Tokyo, Japan.

Global economic uncertainties also affected sales of mobile handsets in Latin America, with volumes growing just 5.5% year-on-year. “3G promotions have contributed to subscriber growth, however equipment sales have been largely data cards instead of handsets,” says Tuong Nguyen, principal research analyst at Gartner, based in Arlington, Virginia, USA. “SIM-only sales have also increased significantly due to competition and regulation, such as Anatel in Brazil forcing operators to sell unlocked phones.”

The North American mobile handset market continued to grow. Sales to end users were 47 million units, up 4.5% on a year ago. “Smartphones were a key driver of growth in the market, with models from Research In Motion's expanded portfolio and the 3G Apple iPhone proving especially popular,” says Hughes De La Vergne, principal analyst for mobile terminals research at Gartner, based in Dallas, TX.

The market in Western Europe rose from 42 million units in Q2 to 43.5 million, though still below 47.2 million a year ago. Replacement sales slowed as consumers dealt with the higher cost of living and being locked into 18- or 24-month contracts. These longer replacement cycles had a negative effect on market performance and will continue to do so in Q4. “Holiday sales should help boost the market in the final quarter of the year, but there are some signs that will worry vendors,” says Milanesi. “In the UK, O2 and T-Mobile are offering consumers money off their tariff if they postpone upgrading their handsets until January 2009. This is an attempt to reduce subsidy costs and defer them to a new budget cycle, which is bad news for vendors and retailers,” she adds.

“A combination of lower-than-forecast sales of devices in Q3/2008, limited availability of key devices, and a general lack of compelling products leads us to believe that annual growth in the mobile device market will be about 8% in 2008,” she continues. “It is too early to say how long the economic climate will impact the devices market, but we expect market conditions to remain challenging through at least the first half of 2009... We expect sales in 2009 to show a low single-digit growth contraction.”

See related items:

Mobile handset unit shipments continue to grow

Mobile phone sales rise 12% to 305m in Q2/2008

Economic slowdown bypasses mobile device market

Mobile shipments of 289m in Q1 exceed expectations

Handset shipments up 14% year-on-year in Q1

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