Growth, cheap smartphones key in handset market

HELSINKI/SEOUL Tue Apr 13, 2010 1:05pm EDT

J.K. Shin, president of Mobile Communications Business for Samsung Electronics, unveils a new Galaxy S Android smartphone during the International CTIA Wireless trade show in Las Vegas, Nevada March 23, 2010. REUTERS/Steve Marcus

J.K. Shin, president of Mobile Communications Business for Samsung Electronics, unveils a new Galaxy S Android smartphone during the International CTIA Wireless trade show in Las Vegas, Nevada March 23, 2010.

Credit: Reuters/Steve Marcus

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HELSINKI/SEOUL (Reuters) - Top cellphone makers are set to report accelerating market growth and booming demand for new smartphones when they unveil March quarter earnings starting this week.

Cellphone vendors experienced a grim 2009 as recession capped consumer spending on new phones but the smartphone market continued to grow through the downturn, helped by attractive new designs and cheaper features.

Sales volume growth is expected to accelerate to 12.7 percent in the first quarter and to reach 10.8 percent this year, a Reuters poll of 35 banks, brokerages and research firms showed on Tuesday.

South Korean firms Samsung Electronics and LG Electronics, the world's No. 2 and No. 3 handset vendors, are set to continue winning market share in the quarter, but LG's result is expected to suffer. Delays in new flagship model launches and the lack of a strong smartphone offering hurt LG's selling prices and may have depressed margins close to zero, analysts said.

"LG Electronics will show the lowest profit margin among the global major vendors this year as its problem of weak smartphone offerings will continue to depress earnings growth," said Park Won-jae, an analyst at Daewoo Securities.

SMARTPHONE BOOM

Nokia, the world's top cellphone maker, is expected to win some volume market share in the quarter as it is benefiting from increasing demand for cheaper smartphones, but it still lacks top-of-the-range models to battle Apple's iPhone.

No 3 smartphone maker Apple is expected to sell around 7.5 million iPhones in the quarter, down from the holiday sales-fueled December quarter, but doubling sales from a year ago.

"We are obviously seeing very, very strong growth in smartphones. We are seeing a real move from just high-end through to the mid-range," said Alistair Hill, ComScore analyst.

Research firm Gartner has forecast smartphone market volume to grow a whopping 46 percent this year, boosted by demand for cheaper, mid-range smartphones.

Strong demand growth lifted January-March profit of Taiwanese HTC, the world's No 5 smartphone maker, aboves its own expectations, and its March sales jumped 33 percent over the same month a year earlier.

For the February quarter, Blackberry maker Research in Motion, the second largest smartphone maker after Nokia, reported a rise in profit and sales, helped by strong sales of its cheaper, consumer-focused products, but the results lagged expectations.

LG, SAMSUNG TO STRUGGLE WITH SMARTPHONES

Weak smartphone offerings from Samsung and LG are expected to sap earnings growth of the South Korean firms this year, although they are planning catch-up to challenge bigger rivals.

Samsung and LG together command more than 30 percent of the global cellphone market, but they have struggled to muscle into the booming and lucrative smartphone market, with combined market share of below 5 percent.

Samsung margins may come under pressure again, as the firm is set to increase marketing spending to meet its ambitious target of trebling smartphone sales, while increasing competition in the high-end segment and rising component costs may crimp profit, analysts said.

"Its weak smartphone roll-outs in the first quarter capped high-end model offerings and Samsung needs to launch blockbuster models to catch up rivals and it would take a bit of time," said Koo Ja-woo, a Kyobo Securities analyst.

Reflecting such concerns, shares of LG dropped 20 percent in the months to March, although the stock has since recovered.

(Editing by David Cowell)

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