29 July 2011

Mobile phone market up 11.3% in Q2, despite feature phones declining

Despite a weaker feature-phone market (which declined for the first time since Q3/2009), worldwide mobile phone vendors shipments grew 11.3% year-on-year from 328.4 million units in second-quarter 2010 to 365.4 million units in second-quarter 2011, according to the Worldwide Mobile Phone Tracker of market research firm International Data Corp (IDC). However, this was lower than IDC's forecast of 13.3% and also below Q1/2011's 16.8% growth.

The feature-phone market shrank 4% year-on-year in Q2. The decline was most prominent in economically mature regions, such as the USA, Japan and Western Europe, reflecting a combination of conservative spending and users rapidly transition to smartphones.

“The shrinking feature-phone market is having the greatest impact on some of the world’s largest suppliers of mobile phones,” says Kevin Restivo, senior research analyst with IDC’s Worldwide Mobile Phone Tracker. “Stalwarts such as Nokia are losing share in the feature-phone category to low-cost suppliers such as Micromax, TCL-Alcatel, and Huawei,” he adds.

“For the overall market to grow by double digits year over year, despite the decline in feature phones, is testament to the strength of the global smartphone market,” notes Ramon Llamas, senior research analyst with IDC’s Mobile Phone Technology and Trends team. “While this is not a new trend — smartphones have been the primary engine of growth for the last several quarters — it does mark something of a transition point, as demonstrated by the growing number and variety of smartphones featured in the vendors' portfolios.”

The feature-phone forecast is not expected to be any rosier in the quarters and years to come. Growth in shipments of this device type will not exceed 1.1% in any year forecasted by IDC.

Regional analysis

The traditionally slow second quarter in Asia/Pacific was exacerbated by Nokia’s channel inventory corrections in China. Apple thrived in China due to strong iPhone 4 demand. Also, a number of domestic brands in south-east Asia like CSL, Nexian, Q-Mobile, and Wellcom grew sales of Android-powered smartphones. China-based vendors gained share in India and south-east Asia at the low end. In Japan, the impact of the earthquake continued into April and May as component shortages forced manufacturers to release new models in June while customer demand was harder to fulfill.

In Western Europe, the market fell sequentially compared to Q1. The feature-phone market fell, while smartphone shipment growth slowed as phone makers and carriers reduced inventories in advance of expected Q3 product launches. Feature-phone-dependent suppliers were unable to offset feature-phone weakness completely with higher smartphone sales. The Central and Eastern Europe, Middle East, and Africa (CEMA) markets performed well on a year-on-year basis despite civil unrest in Egypt and other Arab countries, where sales were negatively impacted. Samsung gained share, while Chinese brands continued to make inroads in the region.

In North America, smartphones once again took center stage, propelled by lower prices, key device launches, and enhanced channel marketing. In particular, Android-based devices extended their lead in the USA and took leadership in Canada thanks to Samsung, Motorola, HTC and LG. Meanwhile, demand for feature phones continued to slide, but there remained pockets of interest for voice-centric and quick-messaging devices. Still, as the region heads towards a smartphone-centric future, IDC expects feature phones to represent an increasingly smaller portion of the market.

The Latin America market growth was driven by low-cost smartphones, specifically those with social networking features. Lower smartphone prices, including those of the Android variety, are driving smartphone penetration in several Latin American countries. Price is expected to be a point of differentiation — as well as applications and device features — between Android players in future.

Top five mobile phone vendors

Nokia’s hold on the top global mobile phone spot weakened in Q2 as inventory buildups in traditional strongholds, namely China and Europe, led to sharp year-on-year shipment declines. Nokia’s global feature-phone and smartphone businesses suffered a similar fate. One positive sign last quarter was dual-SIM devices; the firm shipped more than 2.6 million in Q2. Over the long term, Nokia’s smartphone fortunes will be dictated by its ability to sell Windows Phone 7 smartphone devices (the firm’s primary smartphone platform of the future), which should hit the market this year. In the meantime, Nokia is trying to sustain shipment volume with low-cost mobile phones and devices powered by the aging Symbian smartphone platform.

Samsung posted double-digit growth year-on-year in Q2, just slightly slower than the overall pace of the market. Like other vendors, it saw a drop in demand for its feature phones, but made up the difference with continued success for its Android-based Galaxy smartphones. The difference between Samsung and market leader Nokia continued to shrink, with less than 20 million units separating the two, mostly due to Nokia’s struggles in the market. Still, Samsung expects continued growth into second-half 2011, which could put it in closer contention with Nokia.

LG Electronics held on to its number three position in Q2, due partly to its Optimus smartphone sales worldwide. However, a combination of factors — including soft demand for its feature phones, slow pace of smartphone releases, and competitive pressures — led the firm to downgrade its outlook for the year by 24%. Originally, LG had anticipated flat growth in 2011 from 2010 levels, even as it expected the overall market to increase by 8%. If LG's volumes decrease as much as it anticipates, other vendors may jockey for position ahead of LG, says IDC.

Apple maintained its number four position overall but closed the gap on top 5 competitors due to another record quarter of unit shipments. The firm easily posted the highest growth rate of the worldwide leaders, despite the fact that its flagship iPhone 4 is now more than a year old. The triple-digit shipment volume growth allowed Apple to more than double its share year-on-year. Apple’s ability to bring its smartphone momentum to developing economies (where it is less successful) will help dictate its smartphone fortunes in future.

ZTE likewise improved volumes and picked up market share during Q2, enough to maintain the number five position. Long known as a purveyor of simple, voice-centric mobile phones, ZTE has stepped up its smartphone game with the continued success of its Android-powered Blade and Racer smartphones while announcing Libra, Skate, and Amigo smartphones for release in second-half 2011. Feature phones continued to be popular for ZTE, with the release of its 547i (a social networking-centric device in Europe).

Table: Source - IDC Worldwide Mobile Phone Tracker, July 28, 2011.

Tags: Mobile handset shipments

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