The Economic Recession and the Global Mobile Phone Market
November 8, 2008
The global economy has been facing recessionary trends over the past few months. The effects of market crashes in the US and the UK have seeped into all the major economies including the Asian markets. Fall in the value of the dollar, reinforced by the housing market crash and rising food and fuel prices, has made a dent in the disposable incomes leading to a change in the priorities about spending on luxury goods. Fears of this recession snowballing into a great depression like the Great Economic Depression of the 1930s are already making the rounds.
Current Scenario of the Mobile Phone Market
The first quarter of 2008 actually saw an increase in the sales of mobile handsets on a year-on-year basis as compared to the first quarter of 2007. Shipments of mobile handsets in 2008 increased by 17 percent over those during the same period in 2007 reaching 296 million units during the first quarter. However, this is 11.6 percent less than the 330.8 million units sold in the last quarter of 2007. Nokia, the leading provider of mobile handsets with a market share of 39 percent, reported a YoY increase in the shipments by 26.8 percent. Samsung’s shipments saw a YoY increase of 33 percent. LG reported the highest YoY increase of over 54 percent in the first quarter while Sony Ericsson’s shipments increased by a modest 2.3 percent. Motorola is the only major company to record a decrease in the rate of shipments by nearly 40 percent.
The Future
The worldwide sales have been more or less driven by the low cost mobile handsets. This segment ensures continued sales for replacement handsets but would lower the average selling prices. Sales of Smartphones and other high to medium-range handsets will however continue take some more time to pick up because of the lull in the mature markets.
Mobile phone companies are striving to stay afloat amid competition by targeting the emerging markets and by offering innovative services at competitive prices. They are concentrating all their energies on the emerging markets in the developing countries which are not much affected by the recessionary trends in the US. These newer markets comprising of Latin America, Greater China, Middle East and Africa, are expected to account for around 70 percent of the mobile handset sales. Nokia and Gartner forecast that sales in 2008 would increase by 10 to 11 percent. The average selling price of Nokia phones came down from 79 Euros in the first quarter to 74 Euros in the second quarter. This has however helped the company to hold on to its market share, earnings and margins.
China and India are currently the biggest markets for mobile phones with subscriber bases of 540.5 million and 250.93 million respectively. These markets are also not much influenced by the credit crisis in the US. China Mobile and Vodafone are continuing with their plans of investing in technologies like Vodafone’s 4G Network which supports faster data routes and has a wider coverage. China Mobile is also set to expand its 3G Networks in order to get a bigger share of the 193 million new customers. Nokia has a market share of around 40 percent in China, which it hopes to retain despite a YoY drop of 30 percent in its global sales in the third quarter.
Apple, the third largest mobile phone supplier in the world, reported revenues of $4.6 billion in the third quarter of 2008. This revenue is for 6.9 million handsets, thus taking the per unit revenue to US$667. Nokia, on the other hand sold 118 million handsets for $12.7 billion with a per unit revenue of US$107. Even if Apple reduces the price of the iPhone by 25 percent to US$500, it will have to sell 30 million phones per quarter to get a 15 billion dollar revenue and become the world leader in terms of revenues. This seems highly unlikely by 2009 or even 2010. Nokia’s market share in North America has however plummeted to 7 percent in the first quarter of 2008 from 20 percent two years ago. This is attributed to an unattractive handset portfolio and weak relations with major operators. Its global market share has however remained at 39.8 percent in the first quarter of 2008. This is mostly due to its strong presence in emerging markets.
Another segment that is hit by the recession is the mobile enterprise applications. These include games and social networking applications. Phones with features like touch screens, high resolution cameras, GPS systems and TV tuners are more in demand in mature markets like the US, UK and Japan.
Conclusion
The mobile phone industry is no doubt treading the path of recession but newer markets are opening up to upkeep the current sales figures. The telecom industry is still in a nascent stage in many countries, which are becoming fertile for the mobile revolution. As companies are cutting costs and harnessing newer technologies to stay profitable, they are also forced to follow aggressive pricing strategies to beat the competition. While mature markets are becoming saturated, smartphones are slowing picking up. Studies have revealed that mobile phones are a necessity and users are willing to cut costs on their landline phones or cable rather than give up their mobile phones. Emerging markets, on the other and, are still price sensitive and are a bigger market for the low and mid-range phones. Mobile phone companies are thus able to withstand because of their sheer geographical range, across the whole world.
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