Q2 Handset Wrap-up: Adapt or decline

After nine months of contractions, second-quarter earnings among handset vendors were better than a lot in the industry had forecasted. Globally, cell phone shipments rose 4.7% sequentially in the second quarter, making it the first such increase for the market since the third quarter of 2008, according to iSuppli. Yet even with shipments in North America rising 8% for the quarter, lines were drawn between those handset makers that could adjust to a volatile and quickly changing market – and those that couldn’t.

The bottom line for Q2 was that nimble vendors had greater shipment volumes, while others continued to decline, said Ramon Llamas, senior research analyst for IDC. Adjusting in Q2 meant focusing on smartphones that appealed to consumers and often lowering prices. Among the top five, Nokia continued its market leadership with 103.2 million devices shipped in Q2, capturing 38% of the industry total and showing a personal improvement of 10.7% sequentially. Korean vendors Samsung and LG, however, showed the most growth, shipping 52.3 million and 29.8 million devices, respectively. Both achieved record highs, Samsung at 19% market share and LG at 11%. Motorola and Sony Ericsson trailed with 5.4% and 5.1% market share, respectively. 

“[LG and Samsung] have hit their sweet spot with a bunch of compelling devices people really want,” Llamas said, adding that the two hot areas are messaging phones and touch screens, both of which typically fall under the smartphone umbrella. Although it barely beat out Sony Ericsson, Llamas is bullish on Motorola given its progress in reducing costs and rationalizing its internal business. He sees Sony Ericsson as the company that will continue to struggle the most.

“We keep hearing, ‘Stay tuned to Q4 – it’s going to be great,’ but there is still another quarter to go through,” Llamas said of Sony Ericsson. “The question I put to them is: What else are you waiting for? They are waiting for LTE to hit the market. Well, that’s great, but we are going to be waiting until 2010 or 2011 or beyond. With that in mind, I don’t see a complete turnaround for Sony Ericsson just yet.”

While the performance of the top five players clearly varied significantly, iSuppli said that overall the combined group dramatically outperformed the smaller players. Overall, total shipments grew by 12.1% in Q2 compared to Q1, while other vendors fell a combined 18.1%

SMARTPHONES STILL DRIVING GROWTH

Smartphones remained the success story of Q2, with approximately 41 million sold in the quarter, up 14% from 36 million in Q1. Juniper Research predicted annual shipments of 176 million smartphones for the year, up by 11% from 158 million in 2008. Juniper anticipates they will account for 15% to 16% of phones sold this year, up from 13% in 2008.

While Research In Motion outsold Apple with 8 million BlackBerrys shipped compared to 5.2 million iPhones, Apple outshone RIM in growth rates. It grew 36.8% sequentially and 643% year-over-year, compared to RIM’s 6.7% and 42.9% growth in the same time frames. “Apple ought to do even better in Q309 as the new iteration of the iPhone arrives in more markets over the coming months,” Juniper Research analyst Andy Kitson said in his blog. “Wider distribution for the iPhone in the US would also very much improve penetration.”