January 21, 2009 / 1:04 PM / 10 years ago

Pricing fears rise in shrinking cell phone market

HELSINKI (Reuters) - Nokia and its main cell phone rivals have started to slash prices as demand falls and retailers cut inventories after lackluster holiday sales.

Consumer electronics demand slumped in the key Christmas season, and handset vendors Motorola and Sony Ericsson have reported grim sales figures.

For 2009, analysts have cut their market estimates with the average forecast now for a 7.9 percent fall in volumes.

Falling demand at a time when retailers and operators are trying to cut inventories has lead to increasingly aggressive pricing. While vendors often cut prices in January, some actions this year have been more aggressive than usual.

“Our researchers have seen significant price cuts in Europe by the major handset vendors as 2009 begins,” said Tom Byrd, who leads device-pricing research at CCS Insight.

“This reflects the highly competitive pricing environment we have been predicting for this year,” he said.

Nokia said early in December it expected to see inventory cuts during first half of 2009.

“Credit and foreign exchange uncertainty has led to widespread destocking in the handset channel, which deepens the downturn,” Morgan Stanley said in a research note.


“After weak Christmas sales, inventory levels are high. I am afraid we could see a price war as inventories will have to be cleaned,” eQ Bank analyst Jari Honko said. “There are two ways to cut inventories — writedowns or dump them on the market.”

For some firms, writing down assets is not an option given stretched balance sheets. Already in November, Nokia said limited availability of credit had started to hurt resellers.

Last week, Nokia slashed prices for many models, with the sharpest cuts — around 10 percent according to Finnish retail data — coming mostly in the mid-to-higher end phones.

Also last week, Europe’s largest independent mobile phone retailer, Carphone Warehouse, slashed more than a third off the price of Nokia’s first phone model with an unlimited music bundle.

Nokia was due to report fourth-quarter results on January 22 at 1100 GMT (6 a.m. EST), with analysts forecasting a steep fall in profits.

Sony Ericsson cut prices in mid-January for its music range models, like W890i and W902, by 10 percent or more, but its sales chief said this was within the usual range.

“We have not reduced prices sharply, not more aggressively than before,” Anders Runevad told Reuters.

Additional reporting by Rauli Laitinen, editing by Dan Lalor

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