Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
It was a year most of us would like to forget, but one we’re certain to remember. Much changed in the past year, with the world’s financial system crumbling and markets worldwide slumping by half. Everyone from CEOs to armchair analysts will have something to say about what happened in 2008, its causes and consequences, and how they were right or wrong. Books will be written, surveys published, and forecasts revised (or even worse, forgotten). One thing is for sure, everyone reading this Analyst Angle will concur that 2008 was certainly not a dull year.
So, what better way to welcome 2009 than to look forward to the five important strategic trends that will play out for wireless vendors, operators, application developers and consumers of all things wireless in the next year (or two). Of course, these are not the only important strategic trends in the industry and I have certainly put aside trends in areas such as mobile broadband, platforms and applications. Readers of this column are invited to add their own comments and thoughts on these and other trends (scroll down to the bottom of this column to add your thoughts).
Strategic trend No. 1: Wireless devices and services are consumer discretionary items and will be impacted by the global economic slowdown
The last 20 years of tremendous growth in the wireless industry have caused many industry insiders to think that wireless devices and services can somehow defy economic gravity. Indeed, when we think back to past economic crises wireless handset sales continued their upward momentum.
The global financial crisis of 2008/09 will show that wireless devices and services are in fact consumer discretionary items. IE Market Research Corp.’s (IEMR) data on third quarter 2008 handset sales show a slump in overall handset sales across various geographies with unit sales in Western Europe declining by -9% year-over-year (YoY), Japan seeing a -28% YoY decline, and even sequential drops in handset sales in emerging markets (-14% quarter-over-quarter decline in Latin America and -7% decline in APAC excluding China). With two-thirds of handsets shipped globally being replacement handsets, we think that wireless devices are just as susceptible to economic downturns as any other consumer discretionary spending item. Consumers worldwide will be cutting back their budgets and will be delaying the purchase of new handsets and plans by at least a few months. This will affect everything: volumes, average selling prices (ASPs), the mix of offerings of device vendors and average revenues per user (ARPUs) and price plans of operators worldwide.
As of December 31, 2008, IEMR is forecasting a -5% decline in device sales for 2009 and only a 5% growth globally of service revenue at the 200-plus wireless operators we cover.
Strategic trend No. 2: The smartphone war has begun!
The one bright spot in the global handset sales picture was actually, you guessed it, North America! Units shipped to North America increased by 12% quarter-over-quarter (QoQ) and 5% YoY in the third quarter of 2008. The reason is the tremendous success of both Apple and RIM in shipping their smartphone devices into the United States. Apple shipped 6.897 million iPhones in the third quarter of 2008, up 516% from the same quarter a year ago while RIM reported some pretty awesome numbers as well.
What I find interesting about the smartphone wars is that North America will actually be the testing ground for 3G-driven data applications, rather than being perennially relegated to wireless purgatory. Given that both Apple and RIM have stronger distribution and supplier channels in North America, look for neat applications emanating from North America-based developers who have stronger relationships with both Apple and RIM.
I also happen to think that marginal growth in profitability at the big-five vendors will be driven by their smartphone sales. Here, the smartphone war of 2009 will determine the future of Motorola’s handset business, given its current lack of a portfolio of 3G smartphone devices. Motorola reported 25.4 million handsets shipped in the third quarter of 2008, which represented a -32% YoY decline in units shipped. How Motorola engages in the smartphone wars in 2009 will, in my view, alter the competitive landscape of the vendor space globally.
Strategic trend No. 3: The wireless infrastructure war has all but ended for Nortel and Motorola
If you thought that competition among handset manufacturers was intense, check out what the infrastructure vendors are going through. IEMR’s data on contracts and revenues at infrastructure vendors shows that third quarter of 2008 results saw a slowdown in revenues among the leading infrastructure vendors, lead by a 15% YoY decline in GSM infrastructure revenues. This shift in spending is exemplified by W-CDMA maintaining its stellar revenue growth with a 67% YoY rate. The shift in spending has also seen CDMA continue its fall with -31% YoY revenue decline in the third quarter of this year. The slowdown in revenues was broad based as EMEA saw its revenues fall -18% YoY while North America fell -22% YoY. Even Asia-Pacific fell to -6% YoY in the third quarter of 2008.
What is interesting about this shift from CDMA and GSM to W-CDMA is that it is happening at the same time as a shift in market share among infrastructure vendors. In terms of market share, the main gainer is Huawei, reaching 11% in the third quarter of 2008. This increase came at the expense of Nokia Siemens Network, Al
