The first half of 2009 may see alarmingly slow handset sales worldwide and, even if the back half of the year improves markedly, all sources point to negative growth for the coming year.
Forecasts for the magnitude of the anticipated slowdown, however, vary widely – a reflection, many say, of the speed and depth and unpredictability of the global, macro-economic downturn.
The decline in global handset volumes is projected by most sources to exceed the 2001 downturn led by the bursting dot-com bubble. The cause: weakened consumer demand and so much inventory in the channel it may take two quarters to clear. Weakened demand in China, based on slowing exports, is oft-cited.
Smartphone sales, which were roaring along at nearly 40% year-on-year growth in the third quarter of this year, will also slow. But according to most projections, they will show positive growth over the course of 2009. In the United States, carrier subsidies have given the sector a helping hand.
The upshot: the strongest brands with the most alluring products may gain share as weakened competitors pull back in survival mode.
The well-oiled machine known as Nokia Corp. is oft-mentioned as a market-share winner in the emerging scenario. But according to many analysts, the profitable, growing smartphone sector is in play; even Nokia isn’t assured of success there. Most mention Motorola Inc., Sony Ericsson Mobile Communications and Palm Inc. as the most vulnerable large firms.
If you’re looking for reassurance, most analysts mention 2010. But for some players, that means an agonizing year ahead.
Range of forecasts
Nokia has guided for negative 5% growth – or more – for the overall market in 2009 and analyst Ittai Kidron at Oppenheimer simply added recently that “any scenario is still possible.” Francis Sideco, analyst at iSuppli Corp., suggested that Nokia is being conservative; iSuppli’s forecast is a delicate negative 5.6%.
The wide range of forecasts, however, reflected not only variability in analysts’ models but an unraveling global economy that continued to surprise the best minds.
IDC delivered the most optimistic scenario: negative 3.5% growth overall, with nearly 9% smartphone growth.
Tero Kuittinen at Global Crown Capital L.L.C. has forecast negative 10% growth overall, “a far more brutal beating” than the 5% decline in 2001, the worst on record, according to the firm.
Matt Thornton at Avian Securities L.L.C. also pegs the overall decline at negative 10%, with 14% growth for smartphones.
Developed markets will weaken the most, Thornton said. In contrast, emerging markets such as India, which still adds about 10 million new subscribers each month, may remain a bright spot. China’s slowdown, however, casts a long shadow, the analyst said.
Standing apart from these forecasts, however, are projections from Strategy Analytics. The firm emphasized the industry’s fundamentals and said in early December that the overall market would grow by negative 1% and that smartphones would charge ahead with 31% year-on-year growth. (Analyst Bonny Joy acknowledged that the negative 1% figure could erode to negative 4%, given December’s new insights.)
“It’s hard to keep pace with a deteriorating situation,” Joy said. “No one has great visibility right now, not even Nokia.”
Joy said that double-digit growth in Eastern Europe, the Middle East and Africa and high single-digit growth in the Asia-Pacific regions would help shore up the global picture.
Apple Inc. will continue to surge in smartphone shipment volumes with further market expansion and, likely, a new iPhone model, Joy added, drawing roughly even with Research In Motion Ltd. Nokia will need to find a market “sweet spot” that combines hardware, software and services to retain its dominant market share in this sector, the analyst concluded.
The grim mood becomes downright painful when names are named.
“The strong brands and platforms will get stronger, and the also-rans are going to have a tough time finding any buyers at all,” said Avi Greengart, analyst at Current Analysis.
Though Nokia will benefit globally from competitors’ contraction in low-end markets, it will continue to struggle for traction in the U.S., Greengart said. Samsung Electronics Co. Ltd. needs better user interfaces and software and integration. LG Electronics Co. has to crack the smartphone category, which Greengart said is “a tall order.” Meanwhile, “Motorola and Palm will need miracles to survive.”
“Nokia’s high-end portfolio remains a headache,” Kuittinen wrote in a recent investor note. And Motorola and Sony Ericsson are “particularly vulnerable.”
A big piece of the puzzle in bringing clarity to the outlook for handsets is two-fold, said Thornton: weak end-demand and inventory build-up.
“Everyone’s grappling with how volatile the inventory recovery will be,” Thornton said.
Avian Securities currently is projecting a full half-year for clearing choked distribution channels, which should give more visibility to consumer demand in the back half of the year.
The next publicly shared metrics to be pounced on: Nokia reports earnings and shipment volumes in the third week of January. With nearly 40% global market share, Nokia’s numbers and any guidance the company offers for upcoming quarters will be swiftly dissected for a way through the fog of a global recession.
