Handset makers face uncertain times

Handset makers face uncertain times
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First Published: Fri, Dec 05 2008. 12 45 AM IST

Updated: Fri, Dec 05 2008. 12 45 AM IST
Things aren’t looking so cheery for handset makers. Research in Motion Ltd (RIM), Palm Inc. and Nokia Oyj have all heavily cut forecasts as purchases of cellphones slow. And global sales are expected to shrink next year for the first time since 2001. Add falling prices to the mix and the end result could be industry consolidation between the big players.
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Nokia kicked off the doom game when it slashed its fourth-quarter estimates last month and warned that worldwide shipments of phones would fall in 2009. Smartphone makers Palm and RIM, maker of the BlackBerry smartphone, quickly followed.
On Thursday, Nokia downgraded further its fourth-quarter market outlook. And next year looks worse. Global shipments may drop 5%, according to Deutsche Bank AG analysts.
But RIM’s warning Tuesday night supplied another sticky point for handset makers.
It expects gross margins to fall 5% from last quarter, indicating a sharp trend towards lower prices. Indeed, many companies have slashed prices hoping to entice already skittish consumers.
The problem is that many markets are already fully mature, as penetration rates in several developed countries exceed 100%. That’s forcing companies to turn to emerging markets for growth, meaning even lower prices.
Moreover, hot areas for growth, such as Russia, have now turned cold, reducing the number of new customers. And recession in rich countries means fewer high-end phones are being sold. Such a downward spiral could cause industry consolidation among the major players. If companies are focused into both mass production of cheap phones and innovation in smartphones, certain marriages may be able to squeeze out extra efficiencies.
That’s what happened in 2006, when handfuls of Chinese and Japanese handset makers were acquired by American, European and South Korean companies seeking scale in emerging markets. There are fewer small fish to be gobbled up this time, though.
The five largest handset makers control 84% of the market. Still, the handful of companies that make up the remaining 16%—which includes companies such as Palm and RIM—may be more attractive now than ever.
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First Published: Fri, Dec 05 2008. 12 45 AM IST