Mobile phone sales shrink in fourth quarter

Traditionally strong sales quarter weaker than expected

Vendors shipped 289 million units, compared with 330.8 million units in the same quarter last year. For 2008, though, shipments of 1.18 billion units were 3.5 per cent more than in 2007.

“A combination of weak end-user demand, currency volatility, and limited credit availability prevented the market from experiencing the usual seasonal increase in shipments,” said Ramon Llamas, senior research analyst with IDC's mobile devices technology and trends team. “We expect the first half of 2009 to be very challenging as vendors and distributors grapple with clearing inventory. Should these conditions persist, the mobile phone market may not recover until later this year, and possibly not until 2010.'”

Smartphone sales bucked the trend, increasing 22.5 per cent over sales for 2007. North American sales grew 70.5 per cent, while those in European, Middle East and Africa were up 25 per cent.

Ryan Reith, senior research analyst with IDC's Mobile Phone Tracker, said: “This segment is unique and unlike the rest of the market. Data attachment rates for these devices is well beyond that of traditional mobile phones, and the devices and services catering to this segment were more readily available in 2008. As long as operators are able to continue to subsidize these devices, and developers continue to enhance applications, then this segment will be a silver lining to an otherwise gloomy market.'”

Llamas said that handset vendors, chipset makers, and operators will have to work together to get consumers to keep spending on mobile phones.

“Vendors are not taking this situation lightly, and are undertaking plans to run lean and maintain user interest,'' added Llamas. “Cost reduction and operational efficiency have become cornerstones to corporate strategy and, for some, that can include headcount reduction. Converged mobile devices [smartphones] and services will become primary targets for vendors to focus their resources. Most vendors have already signalled their intentions to concentrate on the hot converged mobile devices space by aligning with operating systems that fit their strategy. Services, meanwhile, have played only a small role in the overall market, but will see increased importance as vendors compete for the user experience.''

The North America market suffered both sequential and year-over-year declines in the fourth quarter as economic conditions worsened. Smartphones provided the one bright spot due to strong consumer interest, wider uptake of unlimited calling and data plans, and plenty of stock in the channels.

The Latin America market slowed as falling currency exchange rates cut spending power. Neither traditional nor smart phone sales grew over the third quarter.

The Western Europe handset market shrank in the final quarter of 2008 more quickly than ever before. Almost all vendors experienced a significant slump in sales. While the previously buoyant market in Central and Eastern Europe, the Middle East and Africa did not show a major retrenchment against the last quarter of 2007, the shipments of market leader Nokia were weak and sales of smartphones shrank as a in relation to the total market.

Chinese consumers didn’t buy mobile phones for much of the quarter, due to the worsening economic climate and the likelihood of 3G promotions in 2009.

Nokia’s sales for devices and services declined nearly 27 per cent from the previous year. Nokia also cut staff. It is focusing on innovation, especially bringing the Internet to mobile devices and developing five interconnected services – maps, music, messaging, media, and games – for its handsets.

Samsung experienced lower sales than expected due to the global recession and saw its operating margin suffer. But demand for smartphones and touchscreen mobiles in developed markets held up as did demand for mid-range camera phones in emerging markets.

LG Electronics climbed into third place for the quarter and for the year. But, due to sales declines in key markets, its margins slid back down into single digits for the first time since 4Q07. It expects to launch ten new models, including an Android phone, by 2Q09.

Sony Ericsson slipped to fourth place during the quarter, citing lower profitability due to ongoing corporate restructuring, higher sales expenses, and a less favorable product mix. But is has joined the Open Handset Alliance (OHA) to build its converged mobile device portfolio and wants to sue its expertise in music and imaging to build more integrated mobile entertainment devices.

Motorola ended the quarter in fifth place, posting another quarter of operating losses due to the financial crisis, restructuring and gaps in its product line.

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