Editor’s Note: This article is an excerpt from RCR Wireless News’ May Special Edition, “Enabling the Mobile Revolution: Mobile Chips, Devices and Accessories.” The 80-page special edition is available here.
Few would deny that the mobile device market stumbled through 2009, posting worldwide sales numbers that were down from what the industry posted in 2008. However, considering the overall world economic climate, the mobile industry was still able to sell approximately 1.15 billion devices last year.
As we near the half-way point of 2010, most indicators are pointing toward a bounce-back year for the segment, with iSuppli Corp. forecasting sales of 1.3 billion devices and the industry’s biggest player, Nokia Corp., recently saying it expects sales to increase 20% compared with 2009. Not a bad rebound.
The catalyst for much of this expected growth has come from the bottom and the top, with basic devices still making up a large percentage of overall device sales, and from the the smartphone segment, which continues to catch the eye of consumers in more developed countries and has shown the most dramatic growth rates across the board. Growth is also coming from niche markets, like connected tablets, and non-traditional devices that employ embedded wireless modules for data connectivity to mobile networks.
The one segment that appears to be suffering is the once-fabled feature-phone market, which is being squeezed by more capable devices on the low end and by increasingly less-expensive and (more) feature-packed smartphones from above. This segment has mutated somewhat into the so-called “quick-messaging device” that has basically grafted a QWERTY keyboard onto feature phones in an attempt to target the booming messaging market where consumers don’t quite need the power, or extra cost of a smartphone.
Who’s on first?
According to a various reports from research firms, the top five handset vendors account for somewhere in the neighborhood of 80% of all device sales worldwide.
According to a report from Gartner Inc., Nokia Corp. remained the wireless industry’s No. 1 handset vendor worldwide in 2009, but its lead over rivals continued to shrink. Nokia reportedly sold nearly 441 million devices in 2009, which was down from the 472.3 million the company sold in 2008. Overall, Nokia’s share of the handset market, which was down nearly 1% year-over-year, sunk from 38.6% in 2008 to 36.4% in 2009.
“Nokia, which is still dominates both the feature phone and smartphone market, and is likely to sustain its leaderships for quite some time, has been facing increased competition, especially from the pro-Android device makers like LG [Electronics Co. Ltd.], Samsung [Electronics Co. Ltd.], HTC [Corp.], as well as Apple [Inc.], Palm [Inc.], and [Research In Motion Ltd.],” noted Julien Blin, principal analyst and CEO at JBB Research. “Apple, which recently launched its highly anticipated tablet PC (the iPad), and could launch its next-generation iPhone (iPhone 4) in June, continues to have strong showing in terms of iPhone sales (8.75 million this quarter), will remain one of Nokia’s most serious competitors in the smartphone market, especially in the U.S., where Nokia captures less than 10% market share.”
Much of that share loss appeared to go to Samsung, which saw its device sales jump from 199.3 million in 2008, or 16.3% market share, to 235.8 million in 2009, or 19.5% market share.
“Samsung was the clear winner among the top five with market share growing by 3.2 percentage points from 2008,” Gartner noted in its report. “This achievement came as a result of improved channel relationships with distributors to extend its reach and better address the needs of individual markets as well as a rich mid-tier portfolio.”
LG was the only company in the top five to post a year-over-year increase in total sales, surging from 102.8 million in 2008, or 8.4% of the market, to 122.1 million in 2009, or 10.1% of the market. That growth also pushed LG past Motorola in worldwide sales, with analysts expecting potential for more growth ahead.
“LG, which plans to become the No. 2 cellphone maker by 2012 and expects a 20% year-over-year increase in unit sales for 2010, is gaining significant traction, especially in the low-end touchscreen smartphone market where it already sold 20 million units in just two years,” noted Blin. “The fact that LG plans to further lower the dependence on the North American market this year to show more interests in Europe and emerging markets (India, China, and Africa) could hurt Nokia where the handset giant has a strong presence. I personally believe that LG could take market share from Nokia in emerging markets since LG seems to be doing a better job than Nokia in terms of [user interface] and mobile user experience. Additionally, LG’s plans to launch smartphones with more affordable prices could also have a negative impact on Nokia’s dominance in the smartphone market.”
Blin added that LG has also yet to benefit from a push with devices powered by Google Inc.’s Android operating system, and that once that kicks in it could see continued growth.
Motorola Inc. and Sony Ericsson rounded out the top five handset vendors for the year, according to Gartner. Motorola saw its handset sales drop by nearly 50% from 106.5 million in 2008 to 58.5 million last year, while Sony Ericsson maintained its No. 5 position despite a sharp drop in sales from 93.1 million in 2008 to 54.9 million in 2009.
Beyond the increased sales posted by Samsung and LG, Gartner’s “other” category also saw a sales increase in 2009. While not listing specific sales, Gartner noted that the “other” category was bolstered by increased sales from Apple Inc. and its lone iPhone device.
JBB Research’s Blin noted that others in the other category that are making inroads include smartphone-focused companies like RIM with its ubiquitous BlackBerry models and HTC, which is pushing heavily with its Android-powered devices.
Growing smarter
Smartphones were a significant driver of overall phone growth in 2009 with segment sales increasing more than 41% year-over-year to 53.8 million units during the final three months of last year, according to Gartner. For the year, smartphone sales jumped nearly 24% to 172.4 million, though that accounted for less than 15% of the total mobile device market. Gartner singled out Apple and RIM as benefiting from the increased demand for smartphones.
According to iSuppli, smartphones will see a 35% increase in sales this year boosted by continued consumer interest in the segment. And for good reason. The devices provide consumers with a computing platform that is superior to most personal computers from just a few years ago. Maybe more importantly, these devices provide consumers with easy access to a range of applications that can further fine tune their device to their needs.
For domestic wireless carriers, smartphones have provided a platform for pushing mobile data services that have allowed carriers to counter falling voice revenues with a robust boost from data services. A number of operators require consumers to purchase data plans with their smartphones ranging up to $30 per month, and these do not include almost mandatory messaging packages as well as additional revenues being generated from application downloads.
For device makers, smartphones have provided a high-margin device segment that has allowed them to counter the still-dominant sales of low-margin, basic devices with these higher-margin halo devices. And, carriers have become so enthralled with smartphones that they are willing in many cases to share in the marketing costs of these devices, further boosting consumer awareness and sales.
And it’s not just the nationwide players that are riding the smartphone wave. Smartphones are also slowly making headway at prepaid wireless carriers
like Leap Communications International Inc.
and MetroPCS Communications Inc. MetroPCS began offering RIM’s BlackBerry devices last year, while Leap is set to add a BlackBerry to its portfolio as well as an Android-powered device provided by Kyocera Wireless Corp.
“2010 is the year that smartphones will go mainstream,” said Nick DiCarlo, director of product planning for Samsung Telecommunications America. “The market has gotten a lot of press over the past year and has a lot of momentum.”
Mobiles for the masses
While smartphones are garnering all of the attention, basic handsets are still the dominant device when it comes to overall sales. This is especially true in developing markets where low price is still the killer applications when selecting a mobile phone.
Of the more than 1 billion mobile devices sold in 2009, more than half were of the basic variety. While these devices typically do not bring in the higher margins of their smartphone relatives, they are still the backbone of the mobile device market.
Social becoming a feature
In between the smartphones and basic mobile devices is the increasingly nebulous world of feature phones/messaging devices. These typically lack the sophisticated OS of smartphones, but do include advanced features in the case of feature phones or either a physical or virtual keyboard in the case of messaging devices.
In addition to fostering greater use of messaging services, these devices increasingly are integrating the growing demand for social networking into their mission statements. A prime example of this was the recent launch by Microsoft Corp. of its Kin devices targeting consumers who feel the need to transmit their current activities at all times.
“Microsoft, expert marketers that they are, have left no question as to who is the target demographic,” noted Parks Associates President Stuart Sikes in a blog-post following the launch of the devices. “They may have carved out a position in a tight, yet well-defined demographic well served by Disney, Miley Cyrus and the ‘Twilight’ crowd. These tweeners and teens may have the income to purchase a smartphone but find their allowance lacks the heft to support the iPhone data plan. In the bloody battle of mobile-phone marketing, Microsoft may be content to win a small slice of the growing pie.”
Of course, Microsoft was not the first to target this crowd, as Motorola seemed to have built its Motoblur feature that runs on top of its Android-powered devices to centralize access to many social-networking sites. In addition, Nokia and Sony Ericsson have recently thrown their hats into this ring with similar devices.
Analyst Jack Gold of J. Gold Associates believes this plethora of new social phones could be a potentially lucrative niche.
“[Microsoft’s] Kin is much more targeted at the younger and socially interactive crowd where personal contact is everything,” he explains.“If it catches on, Kin could usher in a new class of ‘Facebook in Your Pocket’ devices, just like iPhone created a class of devices for Internet-centric users.”
Gold says such social offerings have “the potential for huge upside if these devices take hold with a relatively fickle audience.”
What’s ahead?
The one segment nearly everyone is bullish on is the non-traditional market, or those devices that take advantages of embedded cellular modules. We know most of these today as wireless modems, e-readers or smart grids. But, most see an unlimited potential to begin connecting nearly anything to a wireless network.
“I think in 2011, we won’t even be talking about smartphones,” added Samsung’s Nick DiCarlo. “The tech industry overall is very focused on mobile. That’s why it’s starting to look different. There are a lot of new ideas coming from a lot of different players on ways to take advantage of mobile.”
According to ABI Research, the total number of devices able to connect to a wireless network is set to double within the next five years to 2.25 billion units.
“The next five years will see a shift in the breakdown between types of mobile devices shipped,” said ABI industry analyst Michael Morgan. “Today, wireless handsets rule the roost, with other mobile devices accounting for only 40 million shipments and cellular modems only 60 million. While handset shipments did actually decrease between 2008 and 2009 due to the global recession, the other two segments in fact grew very aggressively. … Handset sales are growing at only 4%, while cellular modem shipments are expected to grow by 40% annually, and ultra mobile devices by 67%. These newer categories represent very attractive market opportunities and new revenue streams for operators.”
