Be astonished (the layperson), be jaded (the analyst) or be jubilant (the handset vendor), but most will have some reaction to the growing chorus of industry players who’ve raised their forecasts for this year’s handset shipments.
Undoubtedly, all the world’s handset vendors will read opportunity into these numbers as they solidify or scrap for market share, profits or partners, according to their individual strategies.
The handset behemoths-Nokia Corp. and Motorola Inc.-stand to gain even greater market share through brand recognition, economies of scale and their current momentum,.. The rest of the so-called Top Five-Samsung Electronics Co. Ltd., LG Electronics Co. Ltd. and Sony Ericsson Mobile Communications L.P.-will undoubtedly redouble their efforts at meeting Nokia’s and Motorola’s challenge by duking it out among themselves in various market segments.
“For devices, the only way to go-at least for the next couple years-is up,” said Taha Rangwala, senior analyst with Pyramid Research, the Cambridge, Mass.-based market analysis firm. “The consensus seems to be that device shipments will continue rising year-on-year, at least for the next two to three years.”
Market analysis firm iSuppli Corp. last week raised its forecast for 2006 to 932 million handset shipments, up from its previous estimate of 900 million units. The earlier estimate reflected nearly 10 percent projected growth year-over-year; the new estimate reflects projected growth closer to 14 percent over last year’s actual numbers.
iSuppli in part based its rosier projections on strong first-quarter shipments by Motorola and Samsung, both of which defied the seasonal lull that typically follows the holiday sales season. iSuppli’s estimates followed closely on the heels of a CIBC World Markets report in which the investment bank raised its estimates for handset shipments to 970 million units for the year, up from previous estimates of 920 million units. According to CIBC, Motorola is the vendor most likely to benefit from increased market share, though rival Nokia is expected to gain as well. The question for industry watchers is where these gains will be realized, as Nokia attempts to catch up with Motorola in North America while Motorola works to expand in Nokia’s home base of Europe.
Earlier this year, just prior to announcing its first-quarter earnings, Nokia led the pack in forecasting greater-than-anticipated growth in handset shipments for 2006. Under Nokia’s revised forecast released at the end of March, the company expects industrywide handset shipments of about 915 million phones this year, up from the 875 million units in its earlier forecast.
The drivers of demand are the familiar twins of emerging markets brimming with new subscribers and mature markets increasingly turning to replacement handsets, according to Rangwala.
As one emerging market cools, another heats up. South Africa, parts of Latin America and Russia were hot. Now, India, China, Pakistan and Bangladesh are hot. Waiting in the wings is a smaller wave of emerging markets such as Vietnam, Nepal and Sri Lanka.
“We’re waiting for that explosion to occur, when perhaps China cools off,” Rangwala said of the East Asian countries. “Of course, a cool China is still a lot hotter than a hot Bangladesh.”
The nature of demand in these countries is multifaceted. While Motorola has gained market share in some emerging markets by pursuing the ultra-low cost handset, analysts also argue that all vendors need to shoot a bit higher on style and features.
“These subscribers have atmospheric aspirations,” Rangwala said. “Purchasers of even $50 handsets still want color displays and mobile messaging. Those attributes are associated with higher-cost handsets, perhaps in the $100-$120 range. So, while low-cost handsets will drive these markets, the challenge is for vendors to deliver the $100 handsets we know today for $50, as soon as possible. For many of these aspirational purchasers, their first phone might be the only phone they own in their lives, so they don’t want a black-and-white phone with voice only.
“It’s a good time right now for vendors to establish brand,” Rangwala added, “because if they can establish brand loyalty going forward-like the Coke and Pepsi rivalry-the Motorolas and Nokias may establish brand loyalty for life, giving them an advantage as replacement demand emerges.”
Network operators can stimulate that trend, according to the analyst. “It’s easy for operators to ramp up [the replacement trend] by offering to replace your handset every year for, say, $50. That’s music sweet music to vendors’ ears,” he said. “And it’s not farfetched from the subscribers’ standpoint-a new handset every year for $50? Why not? So that gets subscribers using operators’ multimedia services.”
