News

28 August 2008

 

Mobile phone sales rise 12% to 305m in Q2/2008

Sales of mobile phones neared 305 million units in second-quarter 2008, up 11.8% on second-quarter 2007, according to market research firm Gartner Inc’s report “Dataquest Insight: Market Share for Mobile Devices, 2Q08".

Sales in the mature markets of Western Europe and North America recovered slightly after a difficult start. Western Europe reached close to 42 million units, while North America surpassed 44 million units.

“The economic environment continued to negatively impact mobile phones sales in both mature and emerging markets,” says Carolina Milanesi, research director for mobile devices. “Consumers in mature markets continued to favour mid-tier devices over high-end devices, while new subscribers continued to join mobile networks in emerging markets,” she adds. “However, replacement sales remained weak, as consumers faced higher prices for fuel and food in addition to higher levels of inflation. Despite this, we remain positive that mobile phone sales in 2008 will reach 1.28 billion units.”

Japanese vendors such as Sharp, Panasonic and Kyocera have historically been the closest to the top five vendors in the worldwide rankings. However, in the past couple of years the Japanese market has become more saturated and their attempts to break into other markets have failed, weakening their role in the worldwide market. Players such as Research In Motion, Tianyu Technology and Gionee Communication of China have subsequently been filling the void.

Nokia sold 120.4 million phones in Q2/2008 and widened its lead to 39.5% market share. Sales in the ultra-low-cost segment remained strong due to its distribution strategy, economies of scale and brand power. However, competition is increasing in this segment and at the high end. In July, Nokia applied strategic price cuts in its mid-tier portfolio, which put pressure on competitors such as Sony Ericsson and LG. Gartner expects Nokia to increase its market share in second-half 2008 due to its wide portfolio, but also its long-awaited touch-screen phone will be a high-mid-tier device rather than the expected high-tier device. This should help drive sales, assuming that it has the right look, specification and usability.

Samsung’s sales into the channel reached 45.7 million units. Good inventory management pushed sales up and helped it reach a market share of 15.2% in Q2/2008. Strong performance helped widen its lead over third-placed Motorola. Milanesi expects Samsung’s sales to remain strong in second-half 2008 as new products such as the Omnia pick up momentum.

Despite its sales growing quarter-on-quarter to 30.4 million units, Motorola’s market share dropped further from 14.5% a year ago to just 10% in Q2/2008. Its portfolio remained uncompetitive because of its lack of 3G and ‘hot’ applications such as GPS and good-quality internet browsing. Gartner remains sceptical that Motorola’s revamp of products such as the Ming in response to the touch-screen market frenzy is a strategy that will help boost sales. The firm risks having to lower the prices of its handsets to compete because of a lack of features.

LG’s positive momentum continued in Q2/2008, with sales of 26.7 million units, boosting market share year-on-year from 6.8% to 8.8%. LG’s efforts to strengthen its portfolio and improve profitability have paid off. Gartner expects LG to sell most of the inventory built up in Q2 during Q3/2008, making up for expected weaker sales into the channel.

With sales nearing 23 million units, Sony Ericsson’s market share grew slightly sequentially, but fell year-on-year from 8.9% to 7.5%, preventing it from advancing from its number 5 position. “Our confidence in an improved performance by Sony Ericsson weakened further as recent product announcements were disappointing, since they delivered similar current features and designs,” says Milanesi. Sony Ericsson has gone form eyeing the number 3 position to fighting to regain fourth place in just a few quarters. Gartner reckons that it needs new designs and a wider feature and application offering to remain competitive.

In Q2/2008, 115 million handsets were sold in Asia/Pacific, up 20.5% year-on-year. Net new cellular connections declined significantly, from more than 83 million connections in Q1 to 75 million in Q2, negatively impacted sales of mobile devices. “High food prices and inflation also had a negative impact on sales of replacement mobile handsets,” says Anshul Gupta, principal research analyst for mobile terminals in Mumbai, India. Sales in emerging markets bolstered overall growth, as growth in mature markets remained flat.

Sales in the Eastern Europe, the Middle East and Africa region rose 18% year-on-year to 56 million units. “The economy in several countries has slowed down and the region saw slower-than-expected replacement sales as consumers dealt with the higher cost of living,” says Annette Zimmermann, senior research analyst for mobile devices in Munich, Germany. “Despite these unfavourable conditions, operators and handset vendors continue to target areas with low penetration in the Commonwealth of Independent States and West Africa.”

In Japan, sales to end users fell 22.1% year-on-year to 9.4 million units. “This drop is twice as much as last quarter and was the result of a lack of new phone features compelling enough to drive growth,” says Kenshi Tazaki, managing vice president, mobile communications research in Tokyo, Japan. Also, pricing schemes introduced at the end of 2007 that reduced subsidy levels have further weakened users’ impetus to replace their handsets.

Sales in Latin America rose almost 19% year-on-year to more than 38.5 million units. This was below expectations, mainly due to strong growth in Q1 and slightly weaker demand in Q2, generating higher levels of inventory as vendors did not fully materialize sales, says Tuong Nguyen, analyst for mobile terminals in Arlington, VA, USA.

In North America, sales to end users rose 6.58% year-on-year to 44.1 million units. “Despite industry concerns over the economic downturn, handset sales were strong, up 5.3% quarter-on-quarter,” says Hughes De La Vergne, principal analyst for mobile terminals research in Dallas, TX, USA. However, new subscribers were limited, as growth continued to be dominated by replacement sales.

Sales in Western Europe rose 16% quarter-on-quarter to nearly 42 million units in Q2/2008, though still down 8.2% year-on-year. Market penetration reached 121.5% in first-half 2008, demonstrating a strong dependence on replacement sales as a market driver, says Milanesi. Economic conditions remained challenging, although some vendors and operators felt this more than others, with Sony Ericsson continuing to feel the strain and Vodafone’ sales being affected by delays in new devices availability and slower replacement sales, she adds.

For full-year 2008, Gartner expects growth of 11% in unit sales of mobile handsets, but just 9% in revenue as increased competition and a tougher economic environment negatively impact average selling prices. “In addition, mobile phone manufacturers will be put under pressure to maintain healthy margins while they intend to further break through the emerging markets to increase sales,” concludes Milanesi.

Table: Mobile terminal sales to end-users in Q2/08 (thousands of units).

Company	Sales	Market %	Sales	Market %
	Q2/08	Q2/08	Q2/07	Q2/07
Nokia	120.35	39.5	100.03	36.7
Samsung	46.37	15.2	36.21	13.3
Motorola	30.37	10.0	39.53	14.5
LG Electronics	26.70	8.8	18.52	6.8
Sony Ericsson	22.95	7.5	24.35	8.9
Others	57.97	19.0	53.96	19.8
Total	304.71	100.0	272.60	100.0

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