There's been quite a bit of discussion in financial circles over the past couple of days concerning a possible slowdown in the expected growth in handset shipments in 2008. Much of this seems to have been provoked by Texas Instruments' gloomy outlook, although this partly reflects Nokia's decision to source chipsets from more suppliers. TI has also suffered a bit compared to Qualcomm through having less exposure to 3.5G growth (lower volumes but higher margins), in areas such as HSDPA modems.
Nevertheless, despite the possible market-share shifts on the silicon side of things, it's also worth keeping a realistic view on the handset market itself. One issue is that the high end devices (eg 3G phones for mature markets) often have wholesale prices up to 10x that of low-end phones popular in emerging economies - and commensurately higher margins. Using overall headline figures like 1.1 bn handset shipments makes great statistics for the industry, but distorts the underlying picture of financial health.
A related thing to consider is the segmentation of the market between:
- sales of phones to new mobile users
- sales of replacement phones to existing users
- sales of 2nd / 3rd devices to existing users
Clearly, in mature markets the majority of purchases fall into the second two categories. Some interesting things to ponder there, though:
- Firstly, replacement phones are often highly contingent on operator-inspired upgrades. And it's notable that in markets like the UK, there's been a huge push recently to move people from 12 to 18/24-month contracts, to reduce the necessary costs of customer retention (eg subsidy) and reduce churn. This is especially true of 3G phones, where operators are loathe to upgrade people to their second or third 3G handset when they're not really using the network that much. Essentially, they'd just be subsidising people to move from a 2MP camera to a 5MP camera on the device - and currently they're using this as a lever to get people to sign up to longer terms.
- Secondly, additional devices (2nd/3rd phones) may well not be as expensive as a user's primary device. They might be cheap fashion-phones, or 3G dongles, or novelties like the 3 Skype Phone. This is good for volumes, but not average selling prices.
Overall, I can't see the handset market taking a nosedive. But I definitely think that some of the underlying dynamics are shifting in ways that perhaps the financial market hasn't priced-in.