Handset volumes recover but intensified price wars loom

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Handset volumes recover but intensified price wars loom

By CAROLINE GABRIEL

Published: 3 November, 2009

READ MORE: Metrics | Nokia | Handset | Symbian

Now that the handset makers have reported their third quarter results, the analysts are putting out their overviews of the total market. The conclusions are similar across the board - the handset sector is certainly in recovery mode, though this may be halting; the year-on-year decline in Q3 was well under the 10% (or far greater) crash predicted this time last year; but this will all be at the expense of lower prices and margins, which some vendors may find as difficult to cope with as the recession.

Deutsche Bank points out that the top five handset vendors saw a combined 7% year-on-year fall in volumes during Q3, with 228m units shipped - the first quarter in the past year to see only single-digit decline. The figures highlight "renewed growth for next year", said the bank's analysts, but accompanied by "brutal price wars" and thinning margins.

These numbers and conclusions reflect those released last week by IDC and Strategy Analytics. The latter calculated a 4% year-on-year fall in phone sales across the whole industry in Q3 and expects this figure to improve to 3% in the current quarter. But much of the expected volume improvements, compared to earlier in the year, will come with aggressive price cuts to clear older inventory and lure holiday season customers to the bewildering - and growing - array of smartphones and midrange webphones coming to the market.

As the vendors target smartphone capabilities, like full operating systems and browsers, at mass market consumers, they will take an inevitable hit on margins, and even high end models are part of a new price war. Apple, the price benchmark in the US at least, kicked off the cycle when it announced its first $99 iPhone (though it probably manages to offload more of the margin squeeze onto carrier partner AT&T than most manufacturers can manage). Verizon Wireless then dropped most of its smartphones to $100 and, while most operators will have some big ticket items among their new season holiday devices, they are also fighting for consumer attention in the midmarket (see how Verizon is launching its own version of the HTC Hero, the Eris, priced at half the amount of the same model at Sprint).

Another survey, from ABI Research, expects full year handset shipments worldwide to decline by only 4-5% on 2008, far better than anticipated at the start of the crash. "The outlook for mobile handset markets continues to improve," said VP of forecasting Jake Saunders. "While 3Q-2009 showed a year-on-year 6.5% contraction in shipments to 291.1m, 2009 should close out with only a 4%-5% contraction (to 1.14bn for the year)."

ABI also summarized the current state of market share, as of the end of Q3. Nokia's slipped a little, from 38.3% a year earlier to 37.3%, as its smartphone range went through transition and it faced competition at the low end from low cost vendors. Samsung raised its share to 20.7% though fellow Korean LG's fell back a bit to 10.9% despite high profile launches. All the other vendors either held their ground or lost a small amount of market share, apart from Apple, whose share rose from 1.9% to 2.5%.

On phones with full-blown operating systems, ABI calculates that Symbian now has 48% share, followed by BlackBerry on 18%, but thinks Android is increasing momentum and could achieve 10% of the smartphone/webphone segment by 2014, much of this at the expense of the closed OSs like Windows Mobile and RIM.