Outlook for cell phone makers worsens

The global economic crisis is taking its toll on the cell phone business, with sales even in the hot smartphone category also expected to slow in 2009.

Two major market research firms published figures for the fourth quarter of 2008 this week. And they each have bleak news for the cell phone industry.

IDC said it expects the volume of all mobile handsets to decline by 8.3 percent in 2009. And it expects sales of hot smartphones, like Apple's iPhone and Research In Motion's BlackBerry phones, to slow to about 3.4 percent growth. Smartphones have been a hot ticket for mobile phone makers over the past year. In December, IDC had predicted a growth rate for smartphones in 2009 to be about 8.7 percent.

But that forecast has changed. Ryan Reith, a senior analyst at IDC, said in a statement that the overall cell phone market was looking gloomier than expected due mostly to the economic crisis. And he said he expected all segments, including smartphones, to be affected in 2009.

Market research firm Gartner published similarly dismal numbers in its market share report for 2008. The firm said that smartphone sales in the fourth quarter of 2008 were only up about 3.7 compared to the previous year. And the firm noted that the growth rate had slowed from the previous quarter. In the third quarter of 2008, smartphone sales increased 12 percent compared to year earlier, and sales were up 16 percent in the second quarter. The firm blames the slowing growth on the deteriorating economic situation.

Still, market forecasters believe that smartphones represent the biggest opportunity for mobile device makers. IDC said in its report that consumers are hungry for smartphones that can access the Internet and run different applications.

But the tough economic times may prevent some consumers from upgrading their phones to smartphones in 2009, largely because the prices of these devices are too high. The sweet spot in the market seems to be in the $200 range. Apple's iPhone, T-Mobile's G1, and several BlackBerry devices sell in this range or slightly lower. These devices are subsidized by mobile operators and require users sign a two-year service contract. The data services attached to these devices are also expensive, typically in the $30 a month range. But as the economic noose tightens around consumers' wallets, it's expected that these prices could keep many potential customers at bay.

It's likely over the next year that mobile operators will subsidize the cost of these phones even more to push sales volumes. But the economic malaise might also create a market for smarter, less expensive, feature phones that don't run a full operating system. These phones, which could sell in the $50-and-under range, could still provide many of the Web functions found on smartphones, such as connectivity to social networking sites, e-mail and IM.

A company called INQ is working on such a phone, and another company called iSkoot just announced on Wednesday that it is offering software to allow all cell phone manufacturers to make their cheap feature phones smarter.

But IDC's analysts believe that the fact that the smartphone market can grow at all, when the total cell phone market is expected to decline 8.3 percent for the year, indicates the strength of this segment. And the firm predicts that when the economy turns around, smartphone sales will explode. I tend to agree. This will become especially true if the economic recovery coincides with nationwide availability of new 4G wireless services from Clearwire and Verizon Wireless.

[shamash30]

What planet is the writer on (below)? Is any constructive analysis done by posing that a one-time hit of $200 will stop these phones from selling? It is not that. It is the cost of the so-called 'hidden fees' that add 15% to monthly plans that discourage most buyers in my opinion. Add $34.50 p/m for data for 2 years. Believe it or not most people can do the math. Subtract $15 p/m (minimum) from the total contract, and I think that many more people would sign up. All of the fees are discretionary on the part of the provider. Perhaps people hunkering down with their present plan or downgrading will make the providers rethink, but I doubt it.

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But the tough economic times may prevent some consumers from upgrading their phones to smartphones in 2009, largely because the prices of these devices are too high. The sweet spot in the market seems to be in the $200 range. Apple's iPhone, T-Mobile's G1, and several BlackBerry devices sell in this range or slightly lower. These devices are subsidized by mobile operators and require users sign a two-year service contract. The data services attached to these devices are also expensive, typically in the $30 a month range. But as the economic noose tightens around consumers' wallets, it's expected that these prices could keep many potential customers at bay.
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[Maggie Reardon]

Well, maybe you didn't read the story carefully enough, but the point I was making is that the one time $200 PLUS an expensive data plan will likely prevent some people from buying smartphones. I agree that many people will still shell out $200 for a phone. And it will be the service fee that will really hurt. But I also think that as the crisis worsens, even the $200 fee will look more like an extravagance whereas a $50 phone that does the same thing AND also has a cheaper monthly service plan could look more attractive to many users.

[artiql8]

The cell phone industry in the US is getting exactly what it deserves ? unfortunately the customers are stuck paying for it. Unlike Europe, the entire system in the US is proprietary, competitive, confusing, expensive, wasteful and redundant. Locked phones, duplicate towers, "reserved" service areas, "exclusive" equipment deals and shockingly lousy customer service provided by the various companies just serve exacerbate the problem with the entire system. In an age where innovation and technology should and could be improving the quality of our lives, in re the cell phone industry, it seems to be doing just the opposite.

Take the iphone as the latest example of yet another mistake by both Apple AND the cell phone industry. People want it the phone and despite the economic situation, they are willing to pay for it. It's a fairly decent phone with user friendly applications that offer some real promise for making life easier but instead of building the phone and making it available for any customer on any type contract service or pay as you go plan, they contracted exclusively with ATT. While the coverage for Verizon is generally better than for it's competitors, Verizon's phones are notoriously lousy AND they lock out so many of the features (like FREE WiFi compatibility) that is already built into the phone equipment but which is LOCKED out by Verizon. ATT is known for some of the worst customer service and less reliable coverage area, but they carry the only phone truly compatible with Mac computer users.

I keep waiting for someone in the industry to finally GET A CLUE that this brave new world they keep raving about requires a more synergistic, supportive, wholistic, customer service oriented and environmentally sound approach to actually realize the dream. In the meantime I occasionally upgrade to a perfectly good used cell phone sold to me rock bottom cheap by someone who just bought the latest in phone craze technology (and the contract to go with it) while I cruise along, contract free, on the SAME plan I've had for 10 years. My phones are fine and my monthly fees are about what they were during my last contract period (the one that ended 8 years ago) -- very LOW! Maybe when the iphone becomes truly egalitarian I'll swing for a new iphone and/or a new plan...or maybe not.