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Thursday, April 13, 2006

Handset volume forecasts - relevance and overenthusiasm?

I see a lot of forecasts about the overall volume of the handset market. Usually, major vendors include predictions in their financial statements, such as SonyEricsson's this morning, of more than 900m shipping in 2006. It seems like the magic 1 billion per year number is around the corner in 2007 or 2008.

A number of my industry analyst peers specialise in box-counting type work, and have similar (or even higher) predictions. I have no wish to directly compete with them, or criticise their results, especially as they often have people "on the ground" around the world, and compile local trends into global analyses.

However, I have some macro-scale thoughts on the underlying assumptions here.

Firstly - the sources of handset shipments are:

- New subscribers
- Existing subscribers replacing their existing phone & ceasing to use the old one
- Existing subscribers getting a second phone/device to use in parallel with the old one

A lot of growth in recent years has been driven by the first two categories. New handset subscribers in places like China and India, or existing users upgrading to cameraphones. In addition, the emphasis on ultra-low cost handsets has also boosted the market. The third category has also evolved in saturated markets like Europe, where people often have multiple handsets or a BlackBerry or other second device. (Also some emerging market users also have 2 phones, so they can arbitrage on tariffs to avoid cross-network calls if they incur a premium price).

I'm wondering about the impact of a few new factors:

- maybe it's just my perception, but I reckon the media is a bit less concerned about new phones being cool, must-have, must-change-every-4-months, fashion accessories than a year ago, with the possible exception of pink phones
- an awful lot of supposedly fashion-conscious people seem to have bought Motorola RAZRs and are still using them after 12-18 months. I also still see a lot of Samsung D500's around. I guess they're happy with them.
- Operators seem to be moving to 18-month contracts, presumably in part so that they don't need to offer expensively-subsidised "free upgrades" after 12 months
- I can't believe anyone in the developing world who's scrimped together $30 to get a ULC handset & prepay card will be on the same replacement cycle as a fashionista in Tokyo or Helsinki. I reckon the more low-end devices there are, the slower the replacement rates will get.

On the other hand, I reckon the 3rd category of multiple device ownership is probably underestimated. I see a number of operators looking at multiple-SIM tariffs, so people can have a sensible "work" phone and a cool "pub" phone without having to swap SIM cards over all the time.

Overall - I'm not sure what the continued engine of market growth is here. It's not 3G - the numbers are still too small. Replacement seems to be a but shaky - aside from "a better camera" there aren't many new must-haves. On the other hand, multiple device ownership looks rosier.

The last word on this is a tale I heard a few months ago from an aid-worker, who works in Zambia. She told me that the kids she works with don't want a phone to show off with any more. They want a USB Memory stick on a cord round their necks, because it makes them look like they've got lots of information & know how to use a PC to access it with.


Andy said...


The way the math would have to work to get a real handle on category 3 is

Phone Manufactured and reporter minus carrier distribution of phones equals remaining phones available for sale minus phones returned by carriers to manufacturers.

You then would have an aggregate number of non-carrier phones available that are new (this does not take into consideration the resale market of "used" phones).

I personally think the real market is the one with phones that never touch the carriers. Call it the wireless aftermarket. Much like the car stereo business, this is where the "better" feature phones will reside.

Dean Bubley said...

I have heard from several sources that a good rule of thumb is that, globally, about 50% of phones are sold by mobile operators & their close affiliates, with the other 50% going through retail & other channels.

However, this number is considerably skewed by China & a few other Asian markets, where the 90% of handsets are not carrier-dependent. Conversely, the US tends to have carrier-dominated distribution, and Europe is pretty mixed, but generally carrier-centric.