Cell Phone Sales Defy Predictions, Hit Record Levels

Worldwide mobile phone sales rocketed to record levels in the first quarter, defying predictions of a slowdown in growth for 2005.

Research firm Gartner said sales rose 17 percent over the same time period last year to 180.6 million units. The first quarter of 2004 had seen the previous high water mark for handset shipments, at 153.7 million units.

Gartner said sales were up in all regions, with buyers upgrading to new phones in mature markets like Europe and North America, and lower-priced handsets selling well in emerging markets. Gartner Research Vice President Ben Wood said those trends, along with strong sales in the Asia/Pacific market during the Chinese New Year season, ensured a “buoyant performance” in the first quarter.

Forecast Raised

That, in turn, prompted Gartner to raise its forecast for 2005 sales. The firm now says sales will be around 750 million units for the year, which would represent an increase of 13 percent. Earlier forecasts called for sales of around 720 million phones.

Among vendors, Nokia managed to grow market share, despite a weak showing in North America, as sales in the Asia/Pacific region buoyed its overall results. Gartner principal analyst Ann Liang said Nokia’s past investments to create a strong distribution network in China has helped position it to reap the benefits of that market’s growth.

Liang said Nokia sold 5.6 million units in China alone during the first three months of the year.

The mobile industry will no doubt cheer the top-line growth, especially since several projections have called for mobile handsets to at least see slowdown in growth rates, with some firms saying single digit growth would replace double-digit expansion starting this year.

Research firm IDC said while overall demand remains strong, the slow arrival of 3G, or third-generation mobile networks that can deliver services that phones are being built to handle, will keep sales somewhat muted this year.

Wood said even with the growth, the numbers still show some challenges for the handset industry, especially in finding ways to sell more high-end — and higher profit margin — smartphones to offset the rise of low-cost handsets being sold into emerging markets such as Latin America. Those challenges will likely result in some industry upheaval in the form of mergers and acquisitions in coming years.

“More phones are being sold, but profit margins are shrinking,” he said. “Consumers in emerging markets want cheap handsets, and competition in more-developed markets keeps prices low. Smaller manufacturers will feel the pressure, and many of them are already struggling to stay profitable. We expect some of them to be bought out, and a few will choose to leave the mobile phone market completely.”

Among vendors, Nokia retained the top spot, with 30.4 percent market share, followed by Motorola with 16.7 percent, Samsung with 13 percent and LG with 6.2 percent.

Seeing the Bigger Picture

Gartner credited Motorola with reviving its brand image on the back of its Razr phone line and improving its relationship with mobile carriers. Another big winner was Samsung, which seems to have grabbed the upper hand in the fast-emerging Russian and eastern European market, Wood added. Siemens, meanwhile, saw its market share fall to levels last seen in 1999, creating additional “uncertainty about the future of Siemens’ business.”

Telecom analyst Jeff Kagan said the cell market might well be slowing down, but that any dip would likely be followed by another wave of sales growth.

“Wireless is one of the key trends of the future and is not going away,” Kagan told the E-Commerce Times. “But we are still early in the growth of the rapidly changing industry so there will be plenty of changes in coming years.”

While growth rates might falter from year to year, he added, the long-term trends will be for more phones to be sold and for those that are sold to be increasingly laden with features — from camera-phones to Web-ready phones and full-blown smartphones that replace digital assistants.

Even a true slowdown in sales will not hamper the move toward more services and commerce opportunities being delivered to mobile phones, Kagan added. “The overall trend is moving in one direction and that’s up.”