The worldwide handset market recorded another quarter of on-year decline in the second quarter of 2009. According to IDC, handset vendors shipped a total of 269.6 million units worldwide, down 10.8% from 302.2 million units in second-quarter 2008. The second quarter results were an improvement from the 17.2% decrease seen during first-quarter 2009, but ongoing challenges stemming from the economic crisis remain a factor to watch, said IDC.
"The challenges from the previous nine months � aggressive channel destocking, foreign exchange volatility, and uncertain demand � continued to plague the handset market in the second quarter, but were not as severe as before," said Ramon Llamas, senior research analyst with IDC's mobile devices technology and trends team. "Those vendors who were able to adjust quickly were rewarded with greater shipment volumes. Although this tested the handset vendors' abilities to hit a moving target, customers reaped the benefits of lower-costs, even on key high-end devices."
For the full year, IDC said it believes that the market will decline 13%, with the market outlook for 2009 remaining relatively consistent among the top vendors. Small signs of improvement were centered around consumer demand for high-end handsets and the manufacturers' ability to shift portfolio to meet these needs.
"Among the big handset vendors, Nokia, Samsung Electronics, Research In Motion (RIM), and Apple, all beat expectations for smartphones within the second quarter," said Ryan Reith, senior research analyst with IDC's worldwide quarterly mobile phone tracker. "This demand for high-end handsets has created a price war among large mobile operators and handset vendors. Apple's price cut on the iPhone 3G reflects a trend we expect to continue in the upcoming quarters, and one that will effectively maintain competitive pricing within mature markets."
Regional analysis
Amidst the ongoing economic challenges in North America, the market for smartphones thrived with the arrival of the Palm Pre and the iPhone 3GS towards the end of the second quarter. Shipment volumes for other smartphone vendors also benefited from increased attention and price adjustments on the segment, pushing the market even higher. At the same time, interest in prepaid devices remained strong for budget-conscious customers. Finally, the market for mid-tier and high-end devices began to show signs of improvement with the arrival of new devices from leading vendors, IDC said.
Despite the expected decrease in volume from 2008 in Latin America, the second quarter of 2009 was stronger than expected, showing solid sequential growth from the doldrums that were seen in first-quarter 2009. Local currencies in the key markets of Brazil and Mexico experienced revaluation from the precipitous drops that occurred in the prior six months, helping to alleviate some of the economic pain being felt by many businesses and consumers. Interest in 3G services and offerings have been expanding in the region, helping carriers to increase, or at a minimum sustain, ARPUs that have been falling over time.
Results in Western Europe continued to reflect weaker demand from the previous year despite some improvement from the first quarter. The growth of the very low-end segment was not sufficient to reverse the decline in traditional handsets. However, the robust growth of smartphones was a sign that the recession may have reached the bottom and some improvements can be expected for the second half of 2009. In CEMA (Central Eastern Europe, Middle East, and Africa), the market showed more vitality after two quarters of abrupt decline, with regional shipments approximately 15% higher than in the previous three months. With handset distribution and sale largely out of mobile operator hands, the financial crisis had squeezed inventory out of the channel as bank and trade credit dried up. The recovery of shipments in the second quarter suggests that this process has now been largely completed and that underlying demand remains robust, IDC commented.
High levels of private savings and aggressive national fiscal policies have helped sustain the demand for consumer products in Asia/Pacific, even as the global economy sputters along. With several economies in Asia showing early signs of recovery, handset demand has also responded in a healthy fashion, with shipments for the region once again surpassing 100 million units in second-quarter 2009.
Top-5 handset vendors
Nokia finished second-quarter 2009 with shipments back above the 100 million unit mark. Launches of key devices, including the E71, N97, and the 5800 smartphones, mitigated further ASP decline and operational efficiency resulted in healthy gross margins overall, noted IDC. Nokia's shipment volumes were roughly equal to those of the next three vendors by the end of the quarter. While still substantial, they were nevertheless down from 2008 when Nokia's shipments were nearly equal to the next four vendors' combined total shipments. While CEO Kallasvuo was pleased with the overall results and the company's traditional advantages, he has also highlighted Nokia's ability to shape the evolving wireless landscape, combining mobile devices and the Internet with Nokia's strong operations, ecosystems, customer relationships, and metrics to track success.
Samsung saw its shipment volumes edge back above the 50 million unit mark on the strength of its broad product portfolio and was rewarded with the highest on-year gain among leading vendors. Its touchscreen and messaging devices continued to find a warm reception in Europe and North America while feature-capable devices and slim form factors attracted customer attention in emerging markets. Meanwhile, operating margins returned to double digits despite higher marketing expenses. By the end of the first half of 2009, Samsung was nearly halfway to its goal of shipping 200 million units for the year.
LG Electronics (LGE) maintained its momentum from first-quarter 2009 to gain market share and improve profitability. Driving its success was a strong portfolio of mid-tier and newly-introduced high-end devices as well as overall operational efficiency. LGE also unveiled plans to improve its smartphone presence, with the launch of the GM730 in summer 2009 and up to five models by the end of the calendar year. Over the next two years, LG hopes to capture 10% of the smartphone market, IDC noted.
Motorola posted another quarter of operating losses as well as the largest on-year decline among the leading vendors. Not to be overlooked, however, is its significant improvement in reducing losses 50% from the previous quarter. The company also made progress filling in some of the gaps in its product portfolio with the launch of several messaging devices, including the Clutch i465, Karma QA1 and Rival A455. Moreover, plans to release Android-powered smartphones during the second half of the year appear to be on track and gained further clarity with the rollout for accelerated application development with its MOTODEV program.
Sony Ericsson's challenges in the handset market continued, earning the company a fifth place finish in second-quarter 2009 while falling further behind Motorola. Ongoing cost reductions, competitive pressures in key regions, and an aging product portfolio resulted in a gross margin of just 12%, but nonetheless an improvement from the 8% in the previous quarter. Sony Ericsson announced plans it hopes will bear fruit later in the year, including the launch of its GreenHeart and Communication Entertainment product lines, as well as enhanced content, services, and applications for consumers, IDC said.
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