Mobile handset OEMs look to smartphones after worst Q4 ever

Deteriorating consumer confidence and the global economic downturn were to blame for handset makers’ fourth-quarter foibles, which were significantly worse than the rest of the year. Worldwide mobile phone sales grew 6% in 2008 but declined by 5% in the fourth quarter, according to Gartner. Overall, 314.7 million units were shipped in the quarter, a 4.6% decline year-over-year (YoY), while the year in total saw growth of 1.22 billion units.

The pain was felt across all top five mobile phone vendors, including market-leader Nokia, which is typically more resilient on a global basis. The fourth quarter is traditionally handset OEM’s biggest quarter due to holiday gift-giving, but this year consumers were too concerned about taking on contracts to make the purchase, said Carolina Milanesi, research director for mobile devices at Gartner. As a result, mobile devices in both emerging and developed markets experienced 2% quarter-on-quarter growth, the lowest ever recorded in a fourth quarter.

Sales into the channel reached 297.3 million in the quarter, while sales to users were just short of 314.7 million units – the biggest difference Gartner has seen since it began measuring the market in 2001. The discrepancy was due to reductions in inventory after low consumer confidence forced both distributors and retailers to limit the volume they hold in stock, Milanesi added. The channels could not afford significant capital investment, and this won’t be changing anytime soon.

“Efforts to reduce inventory will intensify in the first quarter of 2009 and continue into the second quarter of 2009,” she said in a research note. “In the second half of 2009, the channel will have to start restocking, and this will help sell-in volumes. This will not mark the start of a market recovery — we do not expect demand to stabilize before 2010.”

Nokia finished the year strongest with 119 million mobile phones sold in the fourth quarter, although this is still a decline both sequentially and YoY, as it was slow to introduce touch-screen devices to the market. Its market share going into 2009 was 37.7%. Samsung came in second place with a market share of 18.3% and 58 million devices shipped in the quarter. LG, which gave up its fourth place standings to Motorola in the third quarter when it was also passed by Sony Ericsson, recaptured a third-place global ranking and second place standings in North America in the quarter. It captured 9% of the market share. Sony Ericsson had less luck as its sales dropped to 23.6 million units, putting it solidly in fourth place with 7.5% market share.

“Not only did Sony Ericsson fail to reduce stock levels in the fourth quarter, it also built a slight inventory,” Milanesi said. “As both music players and cameras have become more widespread in the competitors' portfolios, it has been more difficult for Sony Ericsson's Walkman and Cybershot product ranges to stand out. Lack of pure touch-screen devices also impacted overall performance in 2008.”