What is the extent of the deterioration of the mobile phone market?


Mobile phone sales are slowing much faster than expected, and even Nokia, once a stock market favorite, is feeling the humiliation inflicted on it by its devaluation.

Just a few months ago, the mobile phone industry looked like it could escape the worst of the global economic downturn. After all, billions of people living in emerging markets still don’t have mobile phones and are eager to get one. Executives at Nokia and other manufacturers had hoped stifled demand in developing countries would help them weather economic decline in Europe and the United States.

But these hopes quickly evaporate. Market watchers are now warning that sales are slowing faster than expected, even in markets such as China, which had seen explosive sales growth for years. After a last quarter of 2008 that some analysts described as catastrophic, manufacturers could find themselves stuck with millions of unsold mobile phones. Weaker players in the market, such as Motorola (MOT) and Sony Ericsson, which were struggling even before the onset of the economic decline, may well scale back their ambitions or even exit the market.

Even Nokia (NOK), economically strong and once a favorite in the stock market, is suffering from the humiliation inflicted on it by its devaluation, expressed by analysts. Jari Honko of Helsinki-based eQ Bank is among the analysts recommending their clients sell their Nokia shares. “Nokia’s sales over the Christmas period were very, very disappointing,” notes Honko, who on January 13 downgraded the rating of Nokia shares that should be “reduced”. He continues: We could be facing a historically difficult first quarter. »


Data on mobile phone sales in recent weeks has been sketchy, but analysts seem to agree that one of the worst economic meltdowns in history has already begun. Market observers do not agree with this finding, but only on the question of the severity of the decline. Research firm Strategy Analytics, for example, officially predicts a 1% drop in global mobile phone sales for the last quarter of 2008, as well as for the whole of 2009.

However, Neil Mawston, who follows the evolution of the wireless industry for this market research company, announces that it is likely that the sales forecast will be revised downwards by a rate of around 5%. for the last quarter of 2008 and for next year. “Obviously the pendulum has reversed to swing down,” says Mawston. He adds that some vendors are bracing for an even worse decline of 20% or more, though Mawston believes such forecasts are overly pessimistic.

People working in this industry will have a better idea of ​​the situation on January 22, when Nokia, by far the largest mobile phone manufacturer, reports its financial results for the last quarter and the full year of 2008. The company warned in December that it was backtracking on one of its latest estimates that the industry as a whole would ship 330 billion cellphones in the last three months of 2008. But Nokia did not give a new estimate , noting that the market had become too unpredictable. A Nokia spokeswoman declined to comment, citing stock market laws that prohibit companies from speaking in public before disclosing their earnings.

The problems of cellphone manufacturers are more serious than the poor health of the global economy in general. In Europe and the United States, growth has slowed for years because virtually everyone owns a mobile phone. For people who only use their cellphones to talk and text, there haven’t been any major innovations that would entice them to buy new devices. “Five years ago, every time a manufacturer upgraded its products, its customers bought a lighter device with a more efficient battery,” said Ian Fogg, analyst at Forrester Research (FORR).


According to him, “mobile phones are of quite good quality these days, so that it is not so advantageous to modernize them. Moreover, the unstable economy only compounds the problem. Since many people fear losing their jobs, most of them keep their old phones or opt for cheap services that do not include a new subsidized phone.

As the crisis deepens, manufacturers are trying to cut costs by cutting back on labor, marketing and research and development. According to Finnish press releases, Nokia has offered senior engineers to buy out their companies. Separately, analysts also expect the company to slow down the launch of its new products and delay its most important innovations to increase its market share in the United States, where Nokia has never benefited from the leadership it enjoys in Europe and in Asia.

All manufacturers wish to avoid a ruinous price war. The company Nokia warns that it will not sacrifice its profitability in order to maintain its world market share, which amounts to almost 40%. But it could prove difficult for cellphone makers to avoid price cuts even as their warehouses fill up with unsold products. Companies will be faced with the constraint of selling as many devices as possible before they become obsolete. “The products in our inventory have a certain lifespan, so it would be wiser to sell them quickly on the market”, reveals Mark McKechnie, analyst at the brokerage firm Broadpoint AmTech (BPSG). McKechnie, who on January 12 downgraded Nokia shares that he suggests “sell,”


Ce dont on peut être sûr, c’est que la crise financière pourrait s’avérer être une opportunité à saisir pour certains acteurs du marché, comme l’entreprise canadienne Research in Motion (RIMM), à l’origine du BlackBerry, ou encore le fabricant de l’Iphone, Apple (AAPL). L’entreprise RIM a réussi avec succès à se développer en dehors du marché dans lequel elle intervient habituellement, à savoir celui des utilisateurs en entreprise, tandis qu’Apple a remis en question la prédominance de Nokia dans la vente des smartphones haut de gamme.

As for Korean companies Samsung and LG Electronics, they could also increase their market share while the decline of the Korean currency, the won, makes the prices of their mobile phones more affordable for foreign buyers. Moreover, even Nokia could benefit from the crisis, as weaker players withdraw from the mobile phone market and the Finnish giant asserts its supremacy in emerging markets. “The long-term fundamentals of the market are still strong,” says Mawston of Strategy Analytics. According to him, “there are still hundreds of millions of people waiting to touch a mobile phone for the first time”.

Nevertheless, it is unlikely that any manufacturer will view the collapse of the economic system, which is currently worsening, positively. In Mawston’s words: “Fear has spread from region to region. »

Leave a Reply

Your email address will not be published. Required fields are marked *