European Handheld Demand Evaporates in 3Q06

According to the latest market data from IDC, the European mobile devices market, including standalone handhelds and converged devices, grew by 13% year on year in the third quarter of 2006 as shipments reached 3.84 million units. However, while market performance constituted a significant improvement following the market decline seen in the previous quarter, growth was buoyed solely by healthy converged device growth of 30% year on year as the handheld market declined for a fourth consecutive quarter.

"Evaporation of consumer demand for bundled handheld GPS solutions and the isolation of business demand predominantly to niche vertical segments fueled further dramatic declines in 3Q06, meaning that negative growth has intensified quarter on quarter since the downturn in 4Q05, with volume declines increasing steadily from -17% to -60% in the third quarter of 2006," said Jean Philippe Bouchard, senior research analyst, European Mobile Devices.

With the exception of Fujitsu Siemens, all handheld vendors suffered negative year-on-year growth during the quarter as the effect of aggressive pricing strategies in 2005 meant few vendors were able to leverage significant price cuts as a means to invigorate demand due to existing strain on profit margins. As a consequence IDC continues to emphasize the inevitability of market consolidation as shrinking volumes and margins force vendors to exit the market and pursue more profitable segments.

Proportional to aggressive declines for handhelds and growth of 30% year on year for converged devices, the latter grew to represent 93% of the device landscape compared to 81% in the corresponding quarter of 2005.

"In the wake of a disappointing first half of 2006 the third quarter reinforced expectations of a strong finish to the year as key vendors completed portfolio transitioning and launched new products to the market ahead of the high-volume final quarter. Similarly, further broadening of Nokia's consumer portfolio, price reductions, and aggressive promotional activity in tandem with substantial growth for Windows Mobile drove market growth," said Andrew Brown, program manager, European Mobile Devices.

Nokia's continued expansion of its consumer S60 portfolio to realize the strategy of pushing its Symbian-based platform deep into the mass market, combined with steady growth of E series shipments, secured a converged device market share of 71%, ahead of RIM, which continued to enjoy healthy growth as shipments grew by 21% year on year. However, the most notable performance in 3Q was that of HTC as branded shipments, including Qtek shipments, grew a substantial 275% compared to Qtek shipments in 3Q05, as the tighter integration of channel partners and the addition of significant marketing investment and more comprehensive end-user support all helped to increase market share to 6%.

"The attraction of superior margins and potentially large volumes drove HTC towards a branded strategy to complement its contract manufacturing business, despite the risk that competing directly with its vendor/operator customers could alienate the source of HTC's profitability," said Geoff Blaber, senior research analyst, European Mobile Devices. "The longer-term impact on HTC's contract manufacturing business remains to be seen, but IDC emphasizes the importance of the move for the wider market and Microsoft in particular as the introduction of a self-branded strategy expands the opportunity for alternative contract manufacturers that previously struggled to match the scale and design capability of the Taiwanese vendor."

Vendor Highlights

Nokia - Maintained its market dominance by increasing market share to 67% overall and 71% of the converged device market, shipping over 2.54 million units, representing year-on-year growth of 28%. The vendor's commitment to the S60 platform was extended with the release of the N73 imaging phone in conjunction with price cuts across the S60 portfolio and significant operator subsidization, while the enterprise-class E series products received a larger sell-in compared with the previous quarter.

RIM - Continued to grow shipments despite intensive competition in hardware and software segments of the business market, with shipments reaching a record 235,000 units ahead of the eagerly anticipated BlackBerry Pearl in 4Q06. The Pearl launch demonstrates RIM's commitment to targeting the prosumer segment with a solution that can balance the requirement for a converged product combining multimedia functions with a strong data experience.

HTC - 3Q06 marked the first quarter of availability for HTC's branded devices in Europe, beginning with its MteoR and TyTN terminals, as the process of phasing out Qtek-branded inventory began in conjunction with the integration of existing support and channel structures under the HTC brand. Year-on-year growth of 275% from shipments under the Qtek brand in 3Q05 demonstrates HTC's substantial investment and commitment to its branded business.

HP - The downturn in the handheld space and specifically the demand for bundled GPS solutions combined with the challenges in transitioning the portfolio to a larger mix of converged devices continued to effect HP in 3Q06, as total volumes declined by 44% year on year and market share fell from 7% to 4%. However, the launch of the hw6900 fueled sequential growth and drove the share of converged devices above handhelds in the overall product mix.

Palm - Palm suffered yet another quarter of negative growth as shipments fell -13% year on year to 98,400 units, causing a decline in total mobile device market share to under 3%. However, unlike HP, Palm is proving slow to expand its converged device portfolio in Europe to compensate for the rapid volume and margin declines in its handheld portfolio."

Posted to the site on 9th November 2006