The second quarter is over in a week and will end with a bang or a whimper, depending on how “opening weekend” goes for Apple Inc.’s iPhone.
Hard numbers from the vendors themselves are due in mid-July and the leading market analysis firms will issue their assessments soon afterwards. Because market analysts consistently track the performances of top-tier handset vendors, however, facets of the handset market at this juncture are already taking shape.
Historical perspective
Historically, the second quarter represents the beginning of the year’s ramp in handset sales as consumers regroup during the first quarter following the holiday frenzy, according to both IDC and Strategy Analytics’ data. The current second quarter is likely to show a 5% sequential jump, in contrast to 6.5% jump in the year-ago quarter, merely a reflection that overall growth in the handset market is slowing, said Ryan Reith, analyst at IDC.
Yet Q2’s seasonal role remains consistent with past years; it will yield a little under one-quarter of the year’s sales, Reith said.
Strategy Analytics pegs global volume for the quarter just ending at about 263 million units, up from 247 million in the year-ago quarter, according to Neil Mawston, an analyst at the research firm. Thus, the rate of growth in handset sales is slowing to 13% in Q2 2007 from 24% in Q2 2006, according to the analyst.
Samsung making headway
Meanwhile, four of the top five handset vendors are busily snapping up the market share ceded by Motorola Inc. as the latter clears inventory from its channels, labors to refresh its portfolio and continues its shift from pursuit of market share to profits.
The biggest beneficiary of Motorola’s stall is expected to be Samsung Electronics Co. Ltd., which seems to have “the right new handsets at the right time,” according to Mawston.
“It took a while, but the Ultra Edition line is really starting to gain a bit of traction,” Mawston said. “Many consumers who bought a Razr a year or two ago are looking to replace them. Samsung, Sony Ericsson, Nokia and LG provide the perfect choices for that switch. They’ve all got strong marketing, branding and distribution-all have strong operator ties in Western Europe and North America-so the difference, really, comes down to price and product. And Samsung has a pretty healthy portfolio right now. Samsung is tempting consumers away from Motorola, which currently has a poor mix of mid- and high-tier in its portfolio.”
Unlike Motorola’s 2006 surge in market share, “Samsung’s story is still strongly based on developed markets,” Mawston added. “Samsung is a pretty late entrant to the developing regions, where they’re still playing catch-up.”
3G growth pushed, not pulled
In the U.S., consumers are buying 3G-enabled feature phones-nearly a third of sales this quarter-largely due to vendors and carriers pushing the availability of those handsets rather than demand by consumers for 3G services, according to Reith.
“We’re still not seeing these services being embraced,” Reith said. “Consumers are saying that the mobile Internet, music and video on-the-go are ‘nice to have’ but those services are just beginning to penetrate consumers’ awareness.”
Mawston concurred.
The 3G push is vendor-originated as handset makers seek to improve-or stem the erosion of-average selling prices and maximize profits in a maturing market that seeks replacement handsets, Mawston said. Globally, W-CDMA handset sales are doubling, year-on-year. About 30 million units were sold globally during the first quarter, up from 17 million units in the year-ago quarter.
“The 3G supply is a vendor-obsessed issue,” the Strategy Analytics analyst said. “The demand is less obsessed. Consumers are still looking more for cool phones than radio speeds. Voice, SMS and ringtones still drive the market.”
“The key supply-side story is that convergence is coming on fast and devices do need to exploit 3G network speeds,” Mawston added.
Vendors must offer “total solutions:” a balance between thin and cool, plus the right features, the Strategy Analytics analyst said.
“People still walk into a retail shop and make up their minds in a few minutes, based on the way handsets look and their positioning,” said Mawston.
iPhone impact
The iPhone, launching on June 29, will really be a third-quarter story, according to Mawston. Strategy Analytics projects 2.5 million iPhone units will sell in 2007, predominantly in the U.S. Outside the U.S., though Apple has significant “mind share,” distribution is the key issue. The patchwork quilt of operators, geographies and the strengths of the incumbent handset vendors will challenge Apple, he said. The vendor must sign up about 20 major operators, including the likes of Vodafone Group plc, T-Mobile International and Orange SA, to make a credible, global push.
