Business forecasts are integral to industry, wireless or otherwise. Vendors crunch them, analysts parse them, investors fret over them, bloggers disparage them and reporters write about them. Early in the year, forecasts typically are up, down or mixed. And by mid-year, there’s enough hard data to adjust them, sometimes in equally diverse directions.
A case in point: projections for global mobile handset shipments. In May, a number of analysts and vendors raised their estimates of global handset shipments. Now, it appears, with vendors’ second-quarter numbers either solid or preliminary, consumers may be pausing to take a breath before plunging into fall and the seasonal retail orgy also known as “the holidays.”
Of course, the methodologies used and specific data that’s scrutinized vary among sources of this ostensible macro-trend, but both market and financial analysts are citing an apparent easing in “end-demand,” as consumers’ retail purchasing patterns are dubbed.
The consensus on the cause is by no means unanimous, but several analysts cite the continuing robustness of new subscribers in emerging markets, while suggesting that mature markets such as the United States and Europe may be sated and are awaiting the release of new models to spark their voracious appetites.
Analysts have been cautious to emphasize that the two juggernauts in handset sales-Nokia Corp. and Motorola Inc.-remain on target and likely will increase their market share and their long-term share of industry profitability. That implies, of course, that someone is going to get hurt, but most vendors’ earnings for second quarter are yet to be announced and, indeed, weakness in the market might not be immediately apparent in any one company’s results.
First out of the box for revised global forecasts was financial analyst Jeffrey Schlesinger of UBS, who wrote to investors on July 6 that handset shipment volumes were likely to hit UBS’ estimate of 955 million handsets, but that “the upward momentum in end-demand seen at the beginning of the year has waned.” Schlesinger wrote that UBS’ projection model would be revised to reflect an upturn in new subscribers in emerging markets and a downturn in replacement estimates in mature markets.
Days later financial analyst Ittai Kidron of CIBC World Markets issued a note titled, “Revenge of 1Q06: Resetting Expectations,” reflecting that unseasonably strong sales in the first quarter may have led to a bit of over-exuberance in industry estimates. Kidron shaved back his firm’s annual projections from 970 million units to 960 million units as a result. The bulk of the adjustment would come in second-quarter shipment volumes, now estimated at 228 million units, vs. earlier estimates of 235 million units. “We remain comfortable with our Motorola and Nokia targets, although our channel checks show some moderation in the low end,” Kidron wrote.
And on July 13, financial analyst Phil Cusick with Bear Stearns wrote: “We are concerned about the softness in the handset market in Q2 and that some of the key mature markets appear to be slowing somewhat. Despite this, we retain our positive stance on Nokia and Motorola.”
With expectations that Motorola and Nokia will do fine, and with Sony Ericsson Mobile Communications L.P. reporting robust second-quarter numbers, somewhere-perhaps in Taiwan, South Korea or mainland China-handset vendors may well be planning on damage control, or even an exit strategy. (Sony Ericsson, perhaps giddy from its own success in the second quarter, raised its own global projections for handset shipments by all vendors from about 900 million units to 950 million units for 2006.)
Neil Strother, research director for the NPD Group, said that “a glut in options” for consumer electronics purchases could well be contributing to any slowdown in mature markets such as the United States.
Second-quarter market share numbers, due in August, may well reveal any victims amid the current fog of data.
Carolina Milanesi, analyst with market research firm Gartner, said that since the beginning of the year her firm has been somewhat skeptical of the robust projections for handset shipments, though it too projected 960 million units for the year-the same as CIBC’s recent, dampened reassessment. That skepticism was two-fold: could component suppliers meet the roaring demand, and would demand, in fact, remain as strong as initially projected?
As for the cause of slowing growth in the United States and Europe, Milanesi said that “people are just waiting for new products to come to market.” Razr sales, which have cut deeply into competitors’ offerings for more than a year, may be slowing a bit due to the handset’s ubiquity.
Still, Gartner, which primarily measures sell-through rather than sell-in, or shipment volumes, is sticking with its 2006 estimate of 960 million handsets.
“Everything is still in line with expectations,” Milanesi said.
