Worldwide Mobile Phone Market Declined by 12.6% in Fourth Quarter

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The worldwide mobile phone market experienced an unusual downturn in the normally robust fourth quarter of 2008 (4Q08). According to IDC's Worldwide Mobile Phone Tracker vendors shipped a total of 289.0 million units 12.6% lower than the 330.8 million units shipped during 4Q07. For the full year 2008 vendors shipped a total of 1.18 billion units worldwide 3.5% greater than the 1.14 billion units shipped during 2007.

"The fourth quarter was the perfect storm of factors to produce this result," said Ramon Llamas, senior research analyst with IDC's Mobile Devices Technology and Trends team. "A combination of weak end-user demand, currency volatility, and limited credit availability prevented the market from experiencing the usual seasonal increase in shipments. We expect the first half of 2009 to be very challenging as vendors and distributors grapple with clearing inventory. Should these conditions persist, the mobile phone market may not recover until later this year, and possibly not until 2010."

If there was one highlight in 2008 it was that the converged mobile devices segment (commonly referred to as smartphones) grew 22.5% over 2007, clearly outpacing the rest of the industry.

"In mature markets, such as North America and EMEA (Europe, Middle East, Africa), the converged mobile device segment grew 70.1% and 25.0% respectively in 2008," said Ryan Reith, senior research analyst with IDC's Mobile Phone Tracker. "This segment is unique and unlike the rest of the market. Data attachment rates for these devices is well beyond that of traditional mobile phones, and the devices and services catering to this segment were more readily available than ever before in 2008. As long as operators are able to continue to subsidize these devices, and developers continue to enhance applications, then this segment will be a silver lining to an otherwise gloomy market."

Looking ahead

With clear expectations that 2009 will be more difficult than 2008, handset vendors, chipset manufacturers, and operators will all have to work in sync to rebuild consumer interest in mobile spending.

"Vendors are not taking this situation lightly, and are undertaking plans to run lean and maintain user interest," added Llamas. "Cost reduction and operational efficiency have become cornerstones to corporate strategy moving forward and, for some, that can include headcount reduction. At the same time, converged mobile devices and services will become primary targets for vendors to focus their resources. Most vendors have already signaled their intentions to concentrate on the hot converged mobile devices space by aligning with operating systems that fit their strategy. Services, meanwhile, have played only a small role in the overall market, but will see increased importance as vendors compete for the user experience."

Regional Analysis

  • The North America market suffered both sequential and year-over-year declines in 4Q08 as economic conditions worsened. The one bright spot was the converged mobile device market, which posted double-digit growth. Driving this category forward were a combination of positive factors, including strong consumer interest, growing popularity of unlimited calling and data plans, and market leaders Research In Motion and Apple keeping channels stocked with their devices.
  • The Latin America mobile phone marketplace showed a slowdown in 4Q08 as falling currency exchange rates led to a decline in both consumer and commercial purchases. Converged mobile device performance was largely flat compared to third quarter results as the shipment numbers from the Apple iPhone launch in 3Q08 could not be sustained for the final quarter of the year, and both Motorola and Palm posted poor results. The traditional mobile phone market also experienced flat growth, marking the first time that this segment did not post two consecutive quarters of year-on-year growth.
  • The Western Europe handset market was hard hit by the financial crisis and shrank in the final quarter of 2008 at a rate never before seen. The traditional holiday campaigns and new product launches were not enough to boost sales in comparison with the previous year and almost all vendors experienced a significant slump in sales. While the previously buoyant market in Central and Eastern Europe, the Middle East and Africa did not show a major retrenchment against the last quarter of 2007, the shipments of market leader Nokia were weak and sales of converged mobile devices contracted in relation to the total market.
  • As the Asia/Pacific market declined in 4Q08, device makers seeking a respite in the emerging market of China were left disappointed. Chinese consumers held off on mobile phone purchases for much of the quarter, largely due to the worsening economic climate, but also due to some anticipation of 3G promotions in 2009.

Top Five Mobile Phone Vendors

  • Nokia gave early indications that 4Q08 would be a challenging quarter due to the economic downturn, and by quarter's end its sales for devices and services had declined nearly 27% from the previous year. In addition, Nokia took the step of reducing headcount in order to lower overall costs. But during these difficult times, Nokia spelled out the need to innovate and grow. To do this, Nokia will continue to bring the Internet onto mobile devices while also developing five interconnected services - maps, music, messaging, media, and games - for its handsets.
  • Samsung experienced lower sales than expected due to the global recession and saw its operating margin suffer. Despite these results, the company had strong demand for the products where it had invested its resources, particularly touchscreen-enabled phones and converged mobile devices in developed markets as well as mid-range camera phones in emerging markets. These three product segments will continue to be the company's key focus in 2009 along with improving cost competitiveness.
  • LG Electronics climbed into third place for the quarter and for the year, both milestones for the company. But, due to sales declines within key markets, its profit margins slid back down into the single digits for the first time since 4Q07. Looking ahead to 2009, the company will emphasize digital convergence on its handset portfolio, and will launch ten new models, including an Android phone by 2Q09. In addition, its new low-tier platform will enable the company to compete aggressively within low-end markets.
  • Sony Ericsson slipped to fourth place during the quarter, citing lower profitability due to ongoing corporate restructuring, higher expenses related to sales, and a less favorable product mix. Even with these negative results, the company made significant investments to compete in the coming months, most notably announcing its participation with the Open Handset Alliance (OHA) to build its converged mobile device portfolio. Next, Sony Ericsson plans to build on its expertise in music and imaging as well as harnessing the Internet to bring more integrated mobile entertainment devices. Finally, Sony Ericsson will expand its services arm now that it has launched its music service PlayNow in Sweden.
  • Motorola ended the quarter in fifth place, posting another quarter of operating losses driven not only by the global economic crisis, but also due to its ongoing restructuring and gaps in its product portfolio. While this is the latest chapter in Motorola's slide in the market, Co-CEO Sanjay Jha pointed out the progress made in terms of cost reduction and platform rationalization, and spoke highly of its converged mobile device innovation around Android. Moving forward, Motorola will focus its efforts on mid-range and high end devices within the Americas and China, a major departure from the company's strategy just two years ago.

Top Five Worldwide Mobile Phone Vendors, Shipments, and Market Share, Q4 2008

(Units in Millions)

Vendor Q408 Unit
Shipments
Q408 Market
Share
Q407 Unit
Shipments
Q407 Market
Share
4Q08/4Q07
Change
Nokia 113.1 39.1% 133.5 40.4% -15.0%
Samsung 52.8 18.3% 46.3 14.0% 14.1%
LG Electronics 25.7 8.9% 23.7 7.2% 8.4%
Sony Ericsson 24.2 8.4% 30.8 9.3% -21.4%
Motorola 19.2 6.6% 40.9 12.4% -53.0%
Others 54.0 18.7% 55.6 16.8% -2.9%
Total 289.0 100.0% 330.8 100.0% -12.6%

Top Five Worldwide Mobile Phone Vendors, Shipments, and Market Share, Full Year 2008

(Units in Millions)

Vendor 2008 Unit
Shipments
2008 Market
Share
2007 Unit
shipments
2007 Market
Share
4Q08/4Q07
Change
Nokia 468.4 39.7% 437.1 38.3% 7.2%
Samsung 196.7 16.7% 161.1 14.1% 22.0%
LG Electronics 100.7 8.5% 80.5 7.1% 25.1%
Motorola 100.1 8.5% 159 13.9% -37.0%
Sony Ericsson 96.6 8.2% 103.4 9.1% -6.6%
Others 218.5 18.5% 199.8 17.5% 9.4%
Total 1180.9 100.0% 1140.9 100.0% 3.5%

Source: IDC Worldwide Quarterly Mobile Phone Tracker, February 4, 2009
Note: Vendor shipments are branded shipments and exclude OEM sales for all vendors.

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