Handsets hit record sales but margins feel pinch

25 May 2005

The mobile phone industry had a record first quarter with worldwide sales totaling 180.6 million units, a 17pc increase from the first quarter of 2004, according to research from industry analyst Gartner.

Mobile phone sales grew in all regions. In the mature markets of Western Europe and North America replacement sales ensured a buoyant performance, while in Asia/Pacific region sales were boosted by Chinese New Year and other festivals. In addition, rapid economic growth in emerging markets, notably Eastern Europe, Middle East and Africa and Latin America, further drove global sales.

The biggest handset maker, Nokia, increased both overall sales and its market share despite poor performance in North America. “The company did particularly well in the Asian-Pacific region, especially in mainland China where aggressive pricing, significant investments in marketing and its distribution network delivered sales of more than 5.6 million units,” said Ann Liang, principal analyst for mobile terminals in Asia Pacific at Gartner.

The Finnish firm shifted 55 million units during the quarter compared with 44.2m in Q1 2004 and increased its market share from 28.8pc to 30.4pc. Second-placed Motorola’s share edged ahead from 16.3pc to 16.8pc share and unit sales rose from 25 million to 30.2 million driven largely by the success of its RAZR V3 phone and improved relationships with network operators. Korea’s big two, Samsung and LG, followed in third and fourth with sales of 24 million and 11 million units and market shares of 13.3pc and 6.2pc respectively. Samsung increased its sales, doing especially well in Western Europe. Samsung also recorded strong sales in Russia, while price reductions helped it elsewhere in the region. Rival LG did well in North America thanks to sales of its code division multiple access phones. However, Siemens and Sony Ericsson lost ground on rivals — Siemens’ share falling from 8pc to 5.5pc and Sony Ericsson’s slipping from 5.6pc to 5.5pc.

These six players accounted for 77.7pc of entire unit sales, up from Q1 2004’s 76.6pc.

Based on the first-quarter results, Gartner has increased its estimates for worldwide sales. Gartner now projects worldwide mobile phone sales in 2005 will approach 750 million units, a 13pc increase from 2004. Gartner had previously forecast sales of 720 million units.

“More phones are being sold but profit margins are shrinking,” said Ben Wood, research vice-president for mobile terminals research at Gartner. “This is because consumers in emerging markets want cheap handsets and competition in more developed markets keeps prices low. Smaller manufacturers will feel the pressure, and many of them are already struggling to stay profitable. We expect some of them to be bought out, and a few will choose to leave the mobile phone market completely.”

By Brian Skelly