FRAMINGHAM, Mass. April 30, 2009 – The worldwide mobile phone market began 2009 with an expected sequential downturn, exacerbated by the challenges of the ongoing worldwide recession. According to IDC's Worldwide Quarterly Mobile Phone Tracker, vendors shipped a total of 244.8 million units in the first quarter of 2009 (1Q09), approximately 15.8% lower than the 290.8 million units shipped during 1Q08. The first quarter of a new year is typically characterized by seasonally lower shipment volumes following a busy holiday quarter with channels clearing out excess inventory. But the 1Q09 decline was especially sharp due to weak end-user demand, currency volatility, and lack of credit for merchants as consumers and the supply chain adapt to the recession.

"That the worldwide mobile phone market started off 2009 with a year-over-year decline highlights just how much the economic recession has affected all industries, including the wireless market," says Ramon Llamas, senior research analyst with IDC's Mobile Devices Technology and Trends team. "The market continues to adapt to the new economic reality with both vendors and retailers exercising caution to remain profitable. In some cases, this has meant holding less inventory, or even reducing headcount. Fortunately, new features and demand for phones will help the market resist the financial pressure. We expect to see further year-over-year declines worldwide, even as some regions show signs of improvement."

As the overall market dropped 15.8% in 1Q09, converged mobile devices (commonly referred to as smartphones) continue to grow year on year at 4.0%. Growth within this segment was evident in Western Europe, North America, and Asia/Pacific (excluding Japan). Mobile operators have become progressively more open to raising subsidies within this segment as dependence on data revenue has increased as a result of reduced consumer demand for new handsets.

"Creativity appears to be the key to success for large mobile operators during this tough time as changes to business practices from past years have become necessary," says Ryan Reith, senior research analyst with IDC's Mobile Phone Tracker. "Some of the big operators in mature markets have shifted product portfolios, and some have smartphones accounting for as much as 50% of the entire handset offering. We believe this strategy will continue, along with an increase in devices that are media and messaging centric, to help operators maintain revenues."

Regional Analysis

• Shipments of mobile phones into North America started the year slightly higher than the same quarter a year ago even as the economic recession bit deeper into the United States and started to impact Canada. Carriers' efforts to lure customers with unlimited plans and free device promotions helped offset a sharper decline, even in the face of slower subscriber growth. Converged mobile devices at lower price points helped stimulate consumer interest in the midst of the economic recession, providing a needed boost to shipment volumes.

• As expected, the Latin American mobile phone markets took a negative turn in 1Q09 as most of the economies in the region began to see slower economic growth. In addition, local currency devaluation drove prices higher on imported phones, reducing demand. This has not deterred future plans of enterprise customers, who have voiced interest in increasing spending on mobile devices in 2009.

• Much of the Western European handset market was characterized by weaker consumer confidence and lower demand, while channels, already holding low inventory, were reluctant to re-stock. This set up challenging conditions for vendors in both the traditional mobile phone and converged mobile device spaces. Meanwhile, the CEMA market posted some positive news, as much of the inventory was cleared at the end of 2008. Shipments into the Middle East and Africa contracted at a slower pace in 1Q09, while demand in Central and Eastern Europe and Russia decreased rapidly due to currency devaluation.

• Asia/Pacific. In a difficult economic climate, China and India offered signs of encouragement in 1Q09. India reported strong subscription additions during the quarter, while China's rural subsidies have helped to prop up handset demand. Still, with growth coming increasingly from lower-end segments in the region, phone makers will find their average selling prices and profit margins challenged.

Vendor Highlights

Nokia saw its shipment volumes dip below the 100 million unit mark for the first time in two years, while its ASP slid due to pricing pressure and greater emphasis on lower-priced devices. Despite these challenges, Nokia posted a healthy 33.8% gross margin on its devices and services, with the success coming from the 5800 XpressMusic device as well as the launch of several services including Comes With Music, Nokia Messaging, Ovi Store, and Point and Find.

Samsung returned to double-digit profitability to start the year, resulting from improved operating efficiencies and a favorable product mix for the quarter. Samsung's strong position in feature phones sustained interest during an otherwise quiet quarter, with touch devices like the F480 and messaging devices like the A767. Samsung also recently announced its first Android-powered device, the i7500, due to hit the European market in June.

LG Electronics began the year on a positive note, posting an increase in operating margins despite a year-over-year decrease in shipment volumes. Driving its improvement was a combination of cost, supply chain, and operational efficiencies as well as warm reception for its touch screen, messaging, and digital imaging devices. Even as the recession continues, the company is targeting double-digit sequential growth in 2Q09 with the release of high-end models to key regions as well as low-cost devices into emerging markets.

Motorola, although posting another quarter of operational loss, showed signs of improvement to start 2009. Co-CEO Sanjay Jha underscored the company's operational effectiveness and cost savings, noting the reduction in operational loss compared to the previous quarter. In addition, Jha highlighted plans to add more smartphones to its portfolio before the end of the year. During the quarter, Motorola launched its Evoke QA4 and MOTOSURF A3100, as well as the industry's first eco-friendly device, the MOTO W233 Renew.

Sony Ericsson saw its market share decline as several key markets moved away from mid- and high-tier devices towards low-cost devices, where the company does not compete. Meanwhile, the company continued to build its content and services platform, with roll out of PlayNow Plus, Movies, and Arena across Europe. Although Sony Ericsson has been implementing a cost reduction plan since the summer of 2008, President Komiyama cited further need to reduce costs and headcount.

Top Five Mobile Phone Vendors, Shipments, and Market Share, Q1 2009

Source: IDC Worldwide Quarterly Mobile Phone Tracker, April 30, 2009

Note: Vendor shipments are branded shipments and exclude OEM sales for all vendors.

Mobile Phones – These small, battery-powered, voice-centric devices utilize operator-provided cellular/PCS air interfaces for voice communication. They are designed primarily, in both form factor and feature set, for a compelling mobile telephony experience, but may also include text-messaging capability. Mobile phones may include a headset jack for hands-free operation as well as a variety of features, such as personal information management, multimedia, games, or office applications. Mobile phones exist at all points along the form factor, price point, and feature set continua. Mobile phones that combine voice communications capabilities with pen or keypad handheld data features are tracked within the Converged Devices category.

For more information about IDC’s Worldwide Quarterly Mobile Phone Tracker, please contact Kathy Nagamine at 650-350-6423 or knagamine@idc.com.

Contact