Qualcomm Warns of Slowing Handset Replacement Cycle

Qualcomm CEO, Paul Jacobs says that there are signs that mobile phone owners are delaying plans to replace their existing handsets - slowing the replacement cycle. Speaking in an interview on CNBC television, he said that the trend has been most noticeable in Japan and South Korea. However, sales of smartphones appeared to be remaining strong.

He added that consumers tend to keep their handset for up to two years, depending on the local market conditions.

The replacement cycle for mobile phones varies radically by the type of market. In India, handset usage is primarily a voice-centric affair. Therefore, the replacement cycle is longer. However, as handset features gain prominence, a recent report from iSuppli predicted that the replacement rate is expected to grow to 25 percent by 2011.

Shipments in Japan are down by 5% year on year according to the local trade group, the Electronics and Information Technology Industries Association.

Mobile phone sales growth is increasingly relying on emerging markets while mature regions, such as Western Europe, Japan and North America reach saturation.

Slowing handset turnover would hurt the handset vendors (and chip suppliers) but the message is mixed for the operators. Where operators offer subsidies to customers the slowing handset cycle is short-term positive, but also leaves customers exposed to churn opportunities when new handsets grab their attention. Older handsets also tend to result in lower use of data and mobile internet services, impacting on ARPU growth.

Weaker sales in the run up to the traditionally peak Christmas season could leave the companies with inventory surpluses in 2009 to clear which would also affect vendor profitability. Sony Ericsson is particularly exposed as it has a range of new handsets waiting to be released -all in the fourth quarter.

However, only last month, Gartner forecast that handset sales were still on pace to increase by 11% during 2008.

"For the second half of the year, we expect sales in the third quarter to be more than the second quarter results, but only moderately as both Motorola and LG issued warnings for a sequential drop in sales, as well as an economic environment that remains challenging," said Carolina Milanesi, research director for mobile devices at Gartner.

 

Posted to the site on 3rd September 2008