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Europe to bear brunt of 2009 cellphone decline

Europe will bear the brunt of 2009’s downturn in the cellphone market because of its shortage of first time subscribers, while Nokia, Samsung and LG will emerge from the recession as the clear winners in terms of market dominance. These are headline results from a poll of 36 industry analysts for news agency Reuters, whose predictions for mobile phone sales in 2009 mainly fell in the range of 3% to 13% decline worldwide.

Europe will bear the brunt of 2009’s downturn in the cellphone market because of its shortage of first time subscribers, while Nokia, Samsung and LG will emerge from the recession as the clear winners in terms of market dominance. These are headline results from a poll of 36 industry analysts for news agency Reuters, whose predictions for mobile phone sales in 2009 mainly fell in the range of 3% to 13% decline worldwide.

Although two of the 36 analyst firms were still holding out for slight growth, most – unsurprisingly – expected the sharpest fall in the short history of the cellphone, worse than the fall of 2001’s telecoms recession because of the lower numbers of first time mobile users to be tapped in developed (ie high margin) markets. Although the strongest vendors have been preparing well for the dip, many analysts expressed concern about excess inventories building up in 2009, especially from midrange suppliers and low cost Asian manufacturers, which have been trying to ‘make hay while the sun shines’ by putting large numbers of low cost phones onto the market to steal share from Nokia, in particular.

The European market will see the sharpest fall because of its saturation levels and fat margins and the weighting of the sector towards emerging markets will become more extreme – sales volumes in these territories overtook those in developed markets for the first time in 2005 and in 2008 about 65% of sales by volume are in new economies.

On average, the poll shows global market volumes shrinking by 6.6% next year, with even the fourth quarter, traditionally the strongest, being 5.7% down on Q4 2008. Revenue drop is likely to be higher – up to 13% – because of the falling average selling price and the shift to new markets.

These predictions are considerably more gloomy than those from a similar poll two months ago, which saw volume growth of 2.6%. The change of sentiment has been influenced by Nokia’s two successive downgrades of its revenue forecasts for the industry, with its ‘best guess’ now being a decline of around 5%.

Some analysts are concerned about an inventory build-up like that of 2001. “We fear that inventories could really exacerbate problems in the first quarter,” said CCS Insight’s Geoff Blaber. “A number of vendors look set to try and reach targets set at the start of the year in a very different climate. That could result in a significant oversupply moving into the first quarter.” In particular, Blaber believes Samsung and LG, as well as the low cost vendors, will have amassed too much inventory. Samsung has an annual sales target of 200m units, which it has not revised, and the head of LG’s telecoms division recently said: “We will reach 100m units at all costs.” However, LG is widely expected to grab the number three global market position convincingly from Sony Ericsson and Motorola during 2009 and put clear water between itself and those close rivals. Nokia is expected to hold on to the highest level of its market share, 40%, with Samsung coming out of 2009 with about 17% share.