El Segundo (CA) – The cellphone industry, one of the last bastions of economic growth, is now also expected to post negative growth in 2009. New research indicates that after ten full years of unprecedented growth, mobile phone shipments are contracting as consumers abandon the usual upgrade cycle and choose to stick with their current cellphones over an extended period of time.
Global mobile devices shipments and revenue are estimated to decline by 5.6% and 10.7%, respectively, in 2009 and will not recover before 2010, iSuppli believes. Even a growing subscriber base cannot offset the revenue decline since most new subscribers are coming from rural areas and buying entry-level handsets.
It is no secret that continuous upgrade cycles drive growth in both the cellphone and computer industries. Now that the U.S. is officially in a recession, and ChangeWave research showing a decline in planned consumer spending and a weakening of buying power, it doesn’t take a rocket scientist to figure out that the mobile phone industry will take a hit as well. However, the immediacy and the size of contraction has surprised industry watchers used to seeing an upward sales curve over the past ten years. Even the slightest contraction in terms of percentage points amount to millions of units and dollars, due to sheer size of the industry that has more than 3 billion cellphone subscribers globally.
According to iSuppli, global mobile phone shipments are estimated to come in at 311 million units in the third quarter, down 0.3% from 312 million in the second quarter. Since cellphones account for the majority of the broader mobile devices segment, the whole market category is contracting as a result. iSuppli estimates mobile devices shipments of 316.7 million units in the third quarter, down 1.1% from 320.4 million in the second quarter. This finding is echoed by conservative sourcing and component procurement activities in the channel as vendors try to reduce their inventory.
As a result, iSuppli lowered global mobile device shipments growth in 2008 from 10.4% to 8.9%, resulting in 1.287 billion mobile device units worldwide by year’s end. Shipments in 2009 are estimated to decline by 5.6% to 1.215 billion units, down from a 1.4 billion estimate previously. “The outlook for 2009 is even more gloomy than for 2008,” said Tina Teng, senior analyst of wireless communications.
Although the industry is estimated to add over one billion new subscribers by the end of 2009 – 563.9 million this year and 506.5 million next year – this will not reverse the decline in revenue as most subscribers come from rural or emerging regions, which means they are purchasing entry-level handsets. The real money, however, is in high-end phones and smartphones which are often bound with revenue-driving service plans. Growth in this segment is supported by upgrade cycles from existing subscribers who are delaying their purchases. With upgrades accounting for more than half of all mobile device shipments in 2008, the whole industry is vulnerable when smartphone subscribers hold on to their money.
The combination of delayed consumer upgrades, erosion of the average selling prices (ASPs) and a higher mix of entry-level handsets will result in a 10.7% decline in 2009, iSuppli believes. The market research firm said that if 16% of 2008 subscribers upgrade their device next year, the replacement cycle will extend by 19 months, which will reduce the mobile device shipment volume in 2008 to 1.3 billion units and to 1.1 billion units in 2009, representing a market contraction of 12% in 2009.
On a brighter note, India is expected to add 9 million new subscribers per month in 2008 while China will expand its subscriber base at a rate of 7 million new subscribers annually. First-time buyers in emerging markets are expected to contribute 42% of the user base of the mobile device market in 2009. iSuppli estimated that the market could recover by the end of 2010 with an annual growth rate of 3.1%.