FRAMINGHAM, Mass. July 30, 2009 – The worldwide mobile phone market recorded another quarter of year-over-year decline in the second quarter of 2009 (2Q09). According to IDC's Worldwide Quarterly Mobile Phone Tracker, handset vendors shipped a total of 269.6 million units worldwide, down 10.8% from 302.2 million units in 2Q08. The second quarter results are an improvement from the 17.2% decrease seen during 1Q09, but ongoing challenges stemming from the economic crisis remain a factor to watch.

"The challenges from the previous nine months – aggressive channel destocking, foreign exchange volatility, and uncertain demand – continued to plague the mobile phone market in the second quarter, but were not as severe as before," says Ramon Llamas, senior research analyst with IDC's Mobile Devices Technology and Trends team. "Those vendors who were able to adjust quickly were rewarded with greater shipment volumes. Although this tested the handset vendors' abilities to hit a moving target, customers reaped the benefits of lower-costs, even on key high-end devices."

For the full year, IDC believes that the market will decline 13%, with the market outlook for 2009 remaining relatively consistent among the top vendors. The small signs of improvement were centered around consumer demand for high-end handsets and the manufacturers' ability to shift portfolio to meet these needs.

"Among the big handset vendors, Nokia, Samsung, Research In Motion, and Apple, all beat expectations for smartphones within the second quarter," said Ryan Reith, senior research analyst with IDC's Worldwide Quarterly Mobile Phone Tracker. "This demand for high-end mobile phones has created a price war among large mobile operators and handset vendors. Apple's price cut on the iPhone 3G reflects a trend we expect to continue in the upcoming quarters, and one that will effectively maintain competitive pricing within mature markets."

Regional Analysis

• Amidst the ongoing economic challenges in North America, the market for converged mobile devices thrived with the arrival of the Palm Pre and the iPhone 3G S towards the end of the quarter. Shipment volumes for other converged mobile device vendors also benefited from increased attention and price adjustments on the segment, pushing the market even higher. At the same time, interest in prepaid devices remained strong for budget-conscious customers. Finally, the market for mid-tier and high-end devices began to show signs of improvement with the arrival of new devices from leading vendors.

• Despite the expected decrease in volume from last year in Latin America, the second quarter of 2009 was stronger than expected, showing solid sequential growth from the doldrums that were seen in 1Q09. Local currencies in the key markets of Brazil and Mexico experienced revaluation from the precipitous drops that occurred in the prior six months, helping to alleviate some of the economic pain being felt by many businesses and consumers. Interest in 3G services and offerings have been expanding in the region, helping carriers to increase, or at a minimum sustain, ARPUs that have been falling over time.

• Results in Western Europe continue to reflect weaker demand from the previous year despite some improvement from the first quarter. The growth of the very low-end segment was not sufficient to reverse the decline in traditional mobile phones. However, the robust growth of converged mobile devices was a sign that the recession may have reached the bottom and some improvements can be expected for second half of the year. In CEMA, the market showed more vitality after two quarters of abrupt decline, with regional shipments approximately 15% higher than in the previous three months. With handset distribution and sale largely out of mobile operator hands, the financial crisis had squeezed inventory out of the channel as bank and trade credit dried up. The recovery of shipments in the second quarter suggests that this process has now been largely completed and that underlying demand remains robust.

• High levels of private savings and aggressive national fiscal policies have helped sustain the demand for consumer products in Asia/Pacific, even as the global economy sputters along. Now, with several Asian economies showing the green shoots of recovery, mobile phone demand has also responded in a healthy fashion, with shipments for the region once again surpassing 100 million units in 2Q09.

Top Five Mobile Phone Vendors

Nokia finished 2Q09 with shipments back above the 100 million unit mark. Launches of key devices, including the E71, N97, and the 5800 converged mobile devices, mitigated further ASP decline and operational efficiency resulted in healthy gross margins overall. Nokia's shipment volumes were roughly equal to those of the next three vendors by the end of the quarter. While still substantial, this is nevertheless down from a year ago when Nokia's shipments were nearly equal to the next four vendors' combined total shipments. While CEO Kallasvuo was pleased with the overall results and the company's traditional advantages, he also highlighted Nokia's ability to shape the evolving wireless landscape, combining mobile devices and the Internet with Nokia's strong operations, ecosystems, customer relationships, and metrics to track success.

Samsung saw its shipment volumes edge back above the 50 million unit mark on the strength of its broad product portfolio and was rewarded with the highest year-over-year gain among leading vendors. Its touch-screen and messaging devices continued to find a warm reception in Europe and North America while feature-capable devices and slim form factors attracted customer attention in emerging markets. Meanwhile, operating margins returned to double digits despite higher marketing expenses. By the end of 1H09, Samsung was nearly halfway to its goal of shipping 200 million units in 2009.

LG Electronics maintained its momentum from 1Q09 to gain market share and improve profitability. Driving its success was a strong portfolio of mid-tier and newly-introduced high-end devices as well as overall operational efficiency. LG also unveiled plans to improve its converged mobile device presence, with the launch of the GM730 this summer and up to five models by the end of this calendar year. Over the next two years, LG hopes to capture 10% of the converged mobile device market.

Motorola posted another quarter of operating losses as well as the largest year-over-year decline among the leading vendors. Not to be overlooked, however, is its significant improvement in reducing those losses 50% from the previous quarter. The company also made progress filling in some of the gaps in its product portfolio with the launch of several messaging devices. These include the Clutch i465, Karma QA1 and the Rival A455. Moreover, plans to release Android-powered converged mobile devices during 2H09 appear to be on track and gained further clarity with the rollout for accelerated application development with its MOTODEV program.

Sony Ericsson's challenges in the mobile phone market continued, earning the company a fifth place finish in 2Q09 while falling further behind Motorola. Ongoing cost reductions, competitive pressures in key regions, and an aging product portfolio resulted in a gross margin of just 12%, but nonetheless an improvement from the 8% in the previous quarter. Sony Ericsson announced plans it hopes will bear fruit later this year, including the launch of its GreenHeart and Communication Entertainment product lines, as well as enhanced content, services, and applications for consumers.

Source: IDC Worldwide Quarterly Mobile Phone Tracker, July 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.

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