Mobile market slumps into single-digit growth

28 Nov 2008

The mobile market slipped back into single-digit growth of 6pc from 16pc this time last year due to global economic conditions. Nokia is the one manufacturer best positioned to survive the recession.

At a time of increased mobile innovation fuelled by innovative new devices, news of this slump has come as a shock to the sector, and masks wider difficulties for the consumer electronics industry as a whole.

“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,” said Carolina Milanesi, research director for mobile devices at Gartner.

“It has also affected sales in both mature and emerging markets during the quarter. Replacement sales in particular were affected, while first-time users continued to see the value of acquiring a mobile phone,” Milanesi said.

Nokia sold 118 million phones in the third quarter of 2008, the first quarter of the year in which Nokia felt the negative effects of the current economic climate. Lower replacement sales in mature and emerging markets impacted Nokia’s overall sales in the third quarter. Nokia suffered in what it called the ‘converged devices’ segment.

However, analysts said Nokia should be able to marginally improve its share in the fourth quarter of 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 third quarter as sales increased 26.3pc over the same period in 2007. It continued to take advantage of the popularity of its touchscreen devices – the Tocco and Omnia – as well as an enriched mid-tier device portfolio. Despite delivering a strong sell-in, the vendor was also able to burn inventory from the previous quarter.

“Samsung is well positioned for the rest of 2008,” said 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 the third position during the third quarter of 2008 had more to do with the issues that Motorola and LG faced than Sony Ericsson’s ability to turn around its business after a few difficult quarters. Sony Ericsson continued to suffer from the weakness in the 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 during the quarter, 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 touchscreen 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 worldwide share dropped further in the third quarter of 2008 as 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,” Milanesi said.

“We expect Motorola’s issues to continue well into 2009, and are puzzled by recent product announcements such as the Aura — a US$2,000 device — that seem to totally ignore current market dynamics.”

LG’s portfolio remains well-positioned to take advantage of the seasonality in the fourth quarter of 2008, as its pricing is more suited to the current economic climate. LG was able to burn some inventory it built up in the second quarter of 2008, and sales to end users reached 24.1 million units.

“All eyes were on Apple’s performance during the quarter as it ramped up the rollout of its 3G iPhone from six to 51 countries, despite building an inventory of just over 2 million units,” Milanesi continued.

“Apple was able to return in the top-ten vendors ranking at No 7, just under RIM. We expect that sell-in sales during the fourth quarter of 2008 will reflect this inventory level, especially given the current economic environment.”

By John Kennedy

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years