The Poor Economy Hits The Mobile Market, Too

Dec 3, 2008 5:52 PM, MD&D News Staff

The global economic downturn is even affecting the hot mobile-device market, according to iSuppli Corp., as wireless subscribers around the world extend the life cycles of their existing devices. The third quarter of 2008 ended with 316.7 million units, which is a 1.1% drop from the second quarter’s tally of 320.4 units. Mobile handsets, which make up the vast majority of these totals, will achieve 311 million units in 3Q 2008, which is 0.3% less than 2Q 2008’s 312 million units.

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Manufacturers are responding with conservative sourcing and component procurement activities to reduce inventory and maintain lean, efficient operations. Global mobile-device shipment growth will hit 8.9% in 2008, which is down from previous forecasts of 10.4%, and end the year at 1.287 billion units. Shipments in 2009 will decline by 5.6% to 1.215 billion units as consumers worldwide face economic uncertainties of their own, including layoffs, and restrict their own spending on consumer devices.

New subscribers are continuing to grow, with 563.9 million in 2008 and 506.5 million in 2009. Most of these new customers will be from rural areas of emerging regions, and they will buy low-cost, entry-level handsets. Yet with more than 3 billion subscribers around the world, existing customers drive the market, accounting for more than 50% of total mobile-device shipments in 2008 as they upgrade to the new features and advanced services of next-generation smart phones.

As a result, mobile-device shipment growth has become more sensitive to the upgrade cycle. If the replacement cycle extends by 4.7 months, the market contraction will commence. If only 16% of 2008 subscribers upgrade to a new device in 2009, the replacement cycle with grow to 19 months. In turn, mobile-device shipment volume will hit 1.3 billion units in 2008 and drop to 1.1 billion with 12% market contraction in 2009.

Yet iSuppli is revising its 2009 mobile-device forecast (including handsets as well as external modems) to 1.2 billion units, down from 1.4 billion, with handsets accounting for nearly all 2009 shipments. The company also expects the replacement cycle to extend by 10.7 months in 2009 with a replacement rate of 18.1%. With a decline in average selling price and more entry-level handsets on the market, revenues will fall by 10.7% in 2009 as well.

The company noted a couple of areas of good news, though. While mobile-device shipments will contract by 5.6% in 2009, the market will enjoy a year-on-year growth rate of 3.1% by the end of 2010. Also, India added 9 million new subscribers a month in 2008, and China has added 7 million new subscribers over the course of the year. First-time buyers will represent 42% of the market in 2009.