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Wednesday, December 17, 2008
Economic Crisis Spurs Mobile-Device Shipment Contraction in 2009

The once almost unstoppable growth in mobile-device shipments and revenues is coming to a screeching halt as wireless subscribers around the globe extend the life cycles of their existing devices in response to difficult economic conditions.

In the third quarter of 2008, the mobile-device market contracted slightly, ending with 316.7 million units, down 1.1 percent from 320.4 in the second quarter, according to iSuppli Corp. Mobile handsets, which account for the vast majority of this segment, will achieve shipments of 311 million units in the third quarter of 2008, down 0.3 percent from 312 million in the second quarter.

A check in the channel shows that manufacturers are being conservative in their sourcing and component procurement activities, and they are making efforts to reduce inventory to maintain lean and efficient operations.

iSuppli has lowered its forecast of global mobile-device shipment growth to 8.9 percent in 2008, down from 10.4 percent, which will end the year at 1.287 billion units.

"The outlook for 2009 is even more gloomy than for 2008," observed Tina Teng, senior analyst, wireless communications, for iSuppli. "With the United States, Europe and Japan entering recessions, economic uncertainty and waves of layoffs mean that consumers are likely to spend less on mobile products."

Shipments in 2009 are expected to decline by 5.6 percent to 1.215 billion units.

With more than 3 billion subscribers worldwide, the growth of the mobile-device market has been driven by upgrade purchases of existing customers, Teng noted.

"While new subscriber additions are continuing at a healthy pace and are poised to grow by 563.9 million in 2008 and by 506.5 million in 2009, an overwhelming majority of the new subscribers are coming from the rural areas of emerging regions," Teng said. "These subscribers primarily are purchasers of low-cost, entry-level handsets. However, the pricier feature-phone and smart-phone market segments are driven by existing subscribers who are upgrading their mobile devices to take advantage of new features and advanced data services. As the economic climate deteriorates, these customers are delaying their purchases."

With the penetration of mobile handsets in emerging markets rising rapidly during the past few years, upgrades have grown to account for more than 50 percent of total mobile-device shipments in 2008. Because of this, mobile-device shipment growth has become more sensitive to the upgrade cycle.

The replacements

If the replacement cycle extends by 4.7 months, the mobile-device market contraction will commence. If only 16 percent of 2008 subscribers upgrade to a new device in 2009, it will translate into a replacement cycle extension of 19 months. Under these circumstances, the outcome will be that mobile-device shipment volume will be reduced to 1.3 billion units in 2008 and to 1.1 billion units in 2009, with a market contraction of 12 percent in 2009.

However, at this time, iSuppli is not going that far, revising its 2009 mobile-device forecast?including both mobile handsets and external modems?to 1.2 billion units, down from 1.4 billion previously, with mobile handsets accounting for nearly all shipments in 2009. iSuppli estimates that in the mobile-device market, the replacement cycle will extend by 10.7 months in 2009 with a replacement rate of 18.1 percent.

Revenue retreat

Based on iSuppli's preliminary estimate, on top of the Average Selling Price (ASP) erosion and higher mix of entry-level handsets in mobile devices, it is likely industry revenue will suffer a 10.7 percent decline in 2009. iSuppli believes that mobile-device shipments in 2009 will contract by 5.6 percent. By the end of 2010, the mobile-device market should show signs of a revival with a year-on-year growth rate of 3.1 percent.

Despite the economic meltdown and the rising unemployment rate, India will have added 9 million new wireless subscribers per month in 2008 and China's subscriber base will have expanded at a rate of 7 million new subscribers annually. First-time buyers in the emerging market are still going strong and will represent 42 percent of the mobile-device market in 2009.

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