Revenues from mobile phone sales are expected to grow at 6.8% CAGR between 2007 and 2013, and should exceed $200 billion by the end of 2013, according to Informa Telecoms & Media in its latest Future Mobile Handsets report. Emerging markets, including Brazil, Russia, India, and China (BRIC) and Africa, will make up the majority global handset market value, with 60% share in 2013. Growth disparities between developed and emerging markets will become apparent within the next five years.
Growth will not exceed 2% CAGR in developed markets according to the report. Handset market value growth rates are slowing significantly in developed markets and, if the current economic slowdown persists, could even turn negative after 2009. Informa does not expect revenue growth from mobile phone sales to exceed 2% CAGR in Western Europe, 1% in North America, and less than 0.5% in Japan between 2010 and 2013. In these regions, the smartphone market will represent the major growth area. Revenues from this type of phone will represent more than 55% of total handset market value in North America, Western Europe, and Japan. However, this growth will only help offset the sharp decline of non-smartphone market value.
Handset market volume sales in these regions are reaching saturation, leading to increasing competition between handset OEMs. The price war will only intensify at a time when new entrants such as Apple and Google are increasing their pressure on competitors to reduce their prices mainly for feature phones and smartphones.
Malik Saadi, principal analyst at Informa Telecoms & Media, said: “With the ongoing fall of feature phone and smartphone ASPs, several leading handset vendors are now looking for new ways of controlling handset manufacturing costs in order to maintain margins.”
“With this in mind, vendors have already shifted the majority of production plants into low labour cost regions such as China, Taiwan, India, Vietnam and Eastern Europe and now they have to play the only remaining card: lowering the bill they pay for chipsets and terminal software,” Saadi continued.
Device vendors have traditionally relied on customized chipsets for powering their products. Now that modem chips are becoming a commodity, and vendors are adopting off the shelf solutions, price competition is expected to increase significantly, requiring suppliers to generate significant economies of scale.
The mobile handsets industry is also turning its interest to opensource, a community based approach, which promises vendors a reduction in or the elimination of royalties related to terminal software and will also help them lower the cost of maintaining commoditised software because, under open source rules, this cost is shared among all members of the community rather than being borne by a single vendor.
With all these efforts OEMs will find it hard to maintain feature phone and smartphone margins in the future. This is due to growing competition in these market segments involving different types of vendors including incumbent OEMs, consumer electronics vendors, PC vendors, and internet content providers.
“Looking forward, it is becoming clear that, in these regions, handset vendors can no longer rely on mobile phone sales to sustain growth. They will have to look at other opportunities, for example getting involved in content creation and service offering,” said Saadi.
This trend is already happening as a number of device vendors such as Nokia, Apple, and Sony Ericsson are seeking to create end to end ecosystems linking their devices to services they offer. Not only will this enable them to differentiate themselves by offering enhanced user experience to their customers but it will also create new revenue opportunities for them by either delivering their own services or partnering with mobile operators to deliver these services.
The growth in value of the mobile phone market will be driven by the smartphone segment, which will see double digit annual growth until the final year of the forecast period. The annual value of non-smartphones will register almost at zero growth until 2011, partly due to the aggressive migration of subscribers in developed markets to smartphones with an adoption level exceeding 60% in 2011. After that year, the value of non smartphone sales will start to grow again but this time driven by the uptake of 3G and 3.5G services in emerging markets such as China and India.
The value of the global smartphone market will grow from almost $39 billion in 2007 to more than $95 billion, 47% of the total handset market value in 2013. This impressive potential is encouraging device vendors to prepare strong strategies to tap into this lucrative market. A number of vendors are increasing their involvement in open mobile terminal software, which is a core foundation in the development of smartphone devices. Open source will play an essential role in bringing smartphones to the mass market. A number of mobile open source foundations have been created within the last two years; including the Symbian Foundation (SF), the Open Handset Alliance (OHA), and the Linux in Mobile foundation (LiMo). Virtually all OEMs and the leading operators are actively working within these organizations and preparing themselves to compete strongly in this market segment.
“This development clearly indicates the industry is entering a new era where product differentiation will increasingly shift from hardware to software. Vendors who have prepared themselves for this radical change will find themselves in a better position than those who continue to differentiate their products on the basis of hardware,” added Saadi.