Handset Sales Forecasts Upgraded

Merrill Lynch has upgraded their forecasts for handset sales next year to 1,067 million, in a research note from their analysts. Their 2006 handset estimate has also increased from 918 million to 970 million. In their view, 2006 could be the peak year for global and emerging market net adds at 440 million and 387 million.

They expect the annual growth rate of handset unit shipments to slow from 20-30% seen in 2003-06 to 10% or less in 2007-10, mainly driven by a slowdown in emerging markets subscriber growth from 28% YoY in 2006 to 18% YoY in 2007. However replacement handsets in emerging markets will grow at 66% in 2007 and provide the impetus for industry unit growth.

WCDMA handset market should accelerate, driven by HSDPA adoption, to 67% YoY to 168 million, up from 10% to 15% of the market in 2007.

New estimates - Now expect 10% unit growth in 2007

Deviation Table	2005	2006E		2007E		2008E
		New	Old	New	Old	New	Old
Global Mobile Subscribers	2,175	2,615	2,471	2,960	2,794	3,262	3,069
Global Mobile Subscriber YoY Growth Rate	24%	20%	14%	13%	13%	10%	10%
Global Handsets	801	970	918	1,067	981	1,110	1,017
Global Handset YoY Growth Rate	18.8%	21.2%	14.7%	10.0%	6.9%	4.0%	3.7%
Emerging Market Subscribers	1,363	1,750	1,648	2,067	1,949	2,343	2,206
Emerging Mobile Subscriber YoY Growth Rate	35%	28%	21%	18%	18%	13%	13%

Source: ML estimates

Merrill Lynch expects that emerging markets will continue to be the growth driver of the handset market, accounting for nearly 63% of the global market in 2007, up from 54% in 2005. According to
their estimates nearly 58% of units sold this year will be replacements or upgrades - up from 53% in 2005. However in 2007 they expect a sharp jump to 71%.

The vast majority of this increase in replacement handsets is coming from emerging markets where replacement handsets increase from 28% of total shipments in 2005, to 40% in 2006, to 58% in 2007.

It will be interesting to see how powerful brand awareness is when customer start upgrading their low cost handsets to more advanced models. Will customer loyalty cause an upgrade to handsets of the same brand, or will they switch. If the latter - then low cost handset vendors could see a significant increase in sales of their mainstream models from 2007 onwards."

Posted to the site on 30th October 2006

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