The fourth quarter-a seasonally hot quarter for handset sales-is well underway. Time for the crystal ball and a word from a couple of gazers.
The outlook remains positive for fourth-quarter shipment volumes, based largely on historical trends and the remarkable volumes of handsets shipped by all five of the top-tier vendors in the third quarter and, indeed, throughout the year. IDC projected unit shipments of 270 million to 280 million for the fourth quarter. Strategy Analytics projections are a bit higher at 284 million for the quarter.
A billion units for the year would be a record, but Strategy Analytics’ Neil Mawston said that the first three quarters of the year averaged 25 percent growth in shipments, year-on-year, and 284 million shipments in fourth quarter would represent only 16-percent growth compared to the year-ago quarter.
“We’ve factored in a slowdown,” Mawston said. “The handset market is cooling and growth is down, globally. The debate is: how fast is it slowing down?”
Music to their ears
There’s a sense emerging from other data, including forecasts by chip vendors, that the emerging market segment globally represents the robust end of the spectrum and that mature markets where replacement handsets drive sales are cooling more rapidly, according to Will Strauss at Forward Concepts.
Though Nokia Corp. retains its industrywide estimate of 970 million units for the year, Strategy Analytics, IDC and ABI Research all look for a billion units, give or take a handful of millions.
Of vendor performance forecasting in general, Mawston added candidly: “Despite the growing sophistication in market forecasting, it’s still a primitive exercise. It’s more art than science. There’s a lot of subjectivity to it and that affects everyone, including analysts.”
So, what will drive sales in the holiday season in Western markets?
“We’re starting to see music coming to the forefront of the handset’s appeal,” said Ryan Reith, an analyst at IDC. “Consumer awareness is focusing on mobile phones’ music functionality. The initial draw of thinness is losing traction. `Thin’ has become more of an expectation than a selling point.”
Function and form
Reith pointed to the recent release of productivity devices at consumer price points such as Motorola Inc.’s Q, Nokia’s E62 and Research In Motion Ltd.’s Pearl. Thin styling is a given in these models and, to be sure, that was touted, but the real emphasis was on the handsets’ multimedia capabilities.
The Razr Maxx and other handset models have moved dedicated music keys to the outside of the closed clamshell, Reith pointed out. And carriers are emphasizing their music download services. Reith is uncertain whether that trend favors particular handset vendors and he pointed out that each has its own prominent, music-capable offering to tout.
Reith predicted that relatively high-end phones, made more accessible by promotional pricing in the fourth quarter, would attract a disproportionate amount of sales. Because a large proportion of fourth-quarter sales are gifts for others, that favors more elaborate phones, in Reith’s logic.
Mawston differs.
“We’re looking at more of the same,” he said. “Design and style still dominate sales. Those first five seconds-when a consumer views the product on a shelf at a carrier store-is the decisive factor. A device may not be great in its feature set or technology or user interface, but if it looks totally cool people will buy it by the bucket-load.”
Vendor strengths
In Mawston’s view, each top-tier vendor has a halo product or product line that will stand out in consumers’ initial impressions in the retail environment. Nokia is pushing itsseries. Motorola has its Razr/Krzr family. Samsung Electronics Co. Ltd. is touting its Ultra Edition line, particularly its D series. Sony Ericsson Mobile Communications has its Walkman and Cybershot handsets. And LG Electronics Co. Ltd. has the Chocolate, which has given its brand identity a significant lift.
Each vendor has strengths and challenges, according to Mawston.
- Nokia is expected to post a relatively strong quarter in terms of volume, but revenue and profit may look more like the third quarter’s mixed bag. The Finnish vendor’s GSM prepaid offerings are likely gifts in developed markets.
- Motorola’s shipments still outpace average market growth, but the company’s “golden age” may turn out to be 2004-2007. Where Razr was revolutionary, Krzr is evolutionary and less likely to ignite a similarly spectacular sales frenzy. Market share for the two market leaders is expected to be flat over third quarter.
- Samsung is making a steady comeback from a weak first half with portfolio upgrades. Samsung’s portfolio, weighted to the mid- to high-tier, may not be in sync with the holiday’s focus on price, but the vendor should do well in the first quarter of 2007 as Asian markets are propelled by various holidays.
- Sony Ericsson faces a similar price-tier challenge in the fourth quarter, but overall the company is hitting a “sweet spot” as the most profitable vendor with the highest average selling price in the industry.
- LG is hitting “a bit of a sticky patch” right now as it has effectively focused on success in the U.S.’ CDMA market and is playing catch-up globally in GSM markets. But LG’s portfolio has improved, particularly in style and design. In the U.S., LG is dueling with Motorola, quarter by quarter, for the top sales spot, according to Mawston.
In the U.S. market, Mawston is bullish on Motorola and LG. Nokia and Sony Ericsson’s lack of significant CDMA plays hurts their prospects, he said. Samsung is under pressure on the CDMA side from Motorola and LG.
And, suddenly, the crystal ball went dark.
