2009 Wireless Forecast: Handsets: The pain in Spain: Gloomy outlook likely to drive discussion at MWC

The short-term forecast for the handset market calls for pain and belt-tightening, no matter which market analysis you favor.
And those analyses range from pretty harsh to very harsh.
“We expect the first quarter of 2009 to be the absolute volume bottom in the handset industry,” according to Global Crown Capital L.L.C. analyst Tero Kuittinen.
“Unfortunately, the bottom is not yet in sight,” countered Ittai Kidron, analyst at Oppenheimer.
Examining quarterly changes in unit shipments by the top-tier vendors, analyst Brian Modoff at Deutsche Bank wrote last week, “none of this data is particularly encouraging. We see signs of the slowdown in units accelerating … as demand remains tepid throughout the year.”
In the fourth-quarter of 2008 , typically the year’s strongest, only Samsung Electronics Co. Ltd. and rival LG Electronics Co. managed sequential volume increases. In Samsung’s case, particularly, that increase came at the expense of margins and profits. All other major vendors saw a sequential volume drop.
That’s the global picture, one certain to drive much discussion as the industry gathers in Barcelona, Spain, for the Mobile World Congress in two weeks.
Closer to home, North American handset sales may well be plummeting at a precipitous rate, mimicking an earlier European spiral, several analysts said last week.
“We believe the North American handset market is poised to decline markedly faster than Europe in the first half of 2009,” Kuittinen said. “America playing catch-up is going to be particularly painful for Samsung and LG, which seem to have depended on robust U.S. sales to offset the rapidly freezing South Korean market.”
How bad is it?
Volume shipments in the first quarter may dip as low as 250 million units, down more than 18% from the tepid 305 million in the prior quarter, Kuittinen forecasted.
“By region, we expect the biggest declines in Europe and the Americas,” said Modoff. “We are now modeling these regions to be down 15% to 18% (in the first quarter).”
Asia and Africa will be in the low, single digits of growth, while China and India remain relatively flat, Modoff added.
Who’s on first?
Analysts agreed that each of the top-tier handset vendors have relatively unique strengths and weaknesses as they cope with the downturn.
“Many believe that in 2009 the high-end market will thrive even as the mid-range segment shrivels,” Kuittinen wrote last week. “We think consumer preference is already shifting from high-end to lower mid-range, the spot where Nokia [Corp.] dominates and where it has many appealing new models. … If consumers are shifting down market, Nokia stands to benefit.”
Globally, that is. As McKechnie observed of Nokia’s challenges , however, the market leader is “still not making progress in North America … (and) … emerging markets have slowed.”
Samsung’s collapsed operating margins – 2% in Q4 – reflect that slashing prices to grab market share is not sustainable, said Kuittinen.
“This equation does not bode well for Samsung, which seems now the only serious, global, low-end rival for Nokia, as Motorola [Inc.] and Sony Ericsson face mounting losses and falling volumes,” Kuittinen wrote. “The cores of Samsung’s and Sony Ericsson’s handset portfolios are simply unsuitable for a deeply value-oriented consumer climate.”
“We think investors are underestimating how badly the ongoing handset slump is going to ravage Motorola and Sony Ericsson,” Kuittinen added.
LG, which in the recent past showed gains in the U.S., saw the U.S. portion of its business slumping in the fourth quarter and is susceptible to a slowdown here, the analysts agreed.
Smartphones still shining?
The “other” category (vendors outside the top five) has rebounded considerably – to 20.6% of the global market in 2008 from 16.4% in 2007, according to ABI Research data. And it provides a picture of forces at play that jostle the larger vendors. According to ABI, players No. 5 through No. 10 are: Research In Motion Ltd. (1.9% global market share), Kyocera Wireless Corp. (1.4%), Apple Inc. (1.1%), HTC Corp. (1.1%) and Sharp (1%). Three of the five – RIM, Apple and HTC – are recognized as smartphone pure plays. In recognition of the continued growth of smartphones, in contrast to the general market, ABI has christened 2009 the long-awaited “year of the smartphone.”
“Handset vendors will be trying to convince everyone they should own a smartphone,” said ABI analyst Jake Saunders.
Whether vendors and their carrier patrons succeed in this endeavor is far from assured, countered Kuittinen.
“We do not believe the high-end market is going to be as buoyant as many expect,” the Global Crown Capital analyst said.
Still, according to CCS Insights, new handsets introduced at Mobile World Congress are likely to include a few based on Google Inc.’s Android platform, which offers “smartness” license-free in a cost-conscious environment. CCS said it expected at least 20 Android handsets this year, as Nokia also readies a license-free version of its Symbian platform for global dissemination.
“The strong brands and platforms will get stronger and the also-rans are going to have a tough time finding any buyers at all,” concluded analyst Avi Greengart at Current Analysis in a recent report ominously titled, “The Handset Vendor’s Guide to Surviving a Crumbling Economy.”