Cellphone market slowing but smartphones still boom

HELSINKI Fri Oct 29, 2010 5:38am EDT

A HTC smartphone (R) and an Apple iPhone are displayed for the photographer at a mobile phone shop in Taipei March 3, 2010. REUTERS/Nicky Loh

A HTC smartphone (R) and an Apple iPhone are displayed for the photographer at a mobile phone shop in Taipei March 3, 2010.

Credit: Reuters/Nicky Loh

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HELSINKI (Reuters) - Cellphone market growth slowed slightly in the September quarter due to worries over economic growth and component shortages, and the market growth would slow further in the current quarter, researchers said on Friday.

The phones market -- the largest volume electronics industry -- has surged this year from a slump in 2009 when the recession hit consumer spending on the latest gadgets around the world.

Strategy Analytics (SA) said the overall annual market growth slowed to 13 percent in the third quarter, from 16 percent in the first half, and forecast growth to slow further to 10 percent in the fourth quarter.

"Component shortages and ongoing economic volatility slightly constrained volumes," said analyst Neil Mawston.

"We expect the escalating smartphone wars to provide positive upside for handset volumes in the fourth quarter, but the volatile supply of certain components will mean some vendors may not be able to deliver their fully desired output of phones."

Several handset makers, including Nokia and Sony Ericsson, said component shortages dragged their sales in the quarter below expectations.

"The hangover from the economic downturn persisted with constrained component supply impacting performance," said CCS Insight analyst Geoff Blaber.

"We expect supply to remain a problem in the fourth quarter as an abundance of smartphones and a swathe of tablet devices increases pressure on component supply," Blaber said.


The smartphone market continued to surge in the quarter, with Apple's iPhone sales rising 91 percent from a year ago, making it the No. 4 global handset vendor measured by volume.

Since 2009 it has created the largest profits in the industry.

"The entrance of Apple to the top 5 vendor ranking underscores the increased importance of smartphones to the overall market," IDC analyst Kevin Restivo said in a statement.

IDC said on Friday it expects smartphone market volumes to grow 55 percent this year from a year ago.

Sony Ericsson and Motorola, both benefited from their shift in focus to smartphones in the quarter, but their total sales volumes continued to shrink sharply from a year ago as they sold less cheaper models.

Among the top three vendors only No. 2 Samsung Electronics continued to win market share, while the share of LG Electronics and that of market leader Nokia shrank in the quarter.

Samsung reported its quarterly earnings on Friday. The company's smartphones business, a major drag in the first half, is recovering fast and accounts for 11 percent of its total handset shipments, a jump from 2 percent a year ago.

"Handset volumes from many leading names have showed surprising softness - Nokia, LG and Sony Ericsson all coming up short of consensus," said Tero Kuittinen, analyst at MKM Partners.

"Many of these vendors have blamed component shortages for volume lightness, but some questions persist over whether the brand-name phone manufacturers might be losing share to no-name low-end vendors," he said.

LG and Nokia, both have struggled to keep up with smaller rivals in the fatter-margin business of selling more advanced cellphones, and LG on Thursday unveiled a record quarterly loss in its mobile phone unit.

"This was the ninth consecutive quarter that Nokia has grown volumes below the market average," said Strategy Analytics' Mawston.

Nokia has dominated the lower end of the market for years -- controlling more than 50 percent of that market, but analysts said the Finnish firm was under increasing pressure from Chinese rivals like ZTE.

"Nokia's grip on the traditional mobile phone market has been somewhat loosened, as multiple Chinese vendors have gained ground, especially within emerging markets," said IDC analyst Ramon Llamas.

(Editing by Dhara Ranasinghe)

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Comments (1)
ulludapattha wrote:
Nokia had indeed dominated the lower end of the market for years. Then complacency hit Nokia. Recently Nokia’s ex-CEO and present chairman of the Nokia board Jorma Ollila admitted in an interview on Finnish TV that the company was hit by complacency after years of having dominated the mobile phone markets.

The first warning bells rang in June 2007, when Apple entered the scene with its revolutionary iPhone. At the time Nokia’s top executives in Nokia’s glass walled HQ in Finland only sneered at Apple saying it was just a “passing fad that won’t last long.”

Now, we can see the disastrous results of this mockery of Apple’s iPhone on the Nokia brand value and consequently its market share world wide.

Lesson: People who live in glass houses should not throw stones at others.

Oct 29, 2010 5:30am EDT  --  Report as abuse
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