Mobile-phone makers are already feeling the pinch in the U.S. market of an economic slowdown amid tough competition.
U.S. mobile-handset sales were down 13 percent in the second quarter compared to the same quarter in 2007, NPD Group said in a study released Tuesday.
In total, mobile manufacturers sold 28 million units in the U.S. in the second quarter of 2008, with sales of roughly $2.4 billion, marking a decline of about 2 percent compared to last year's second quarter, NPD said.
Samsung warned investors this summer, following the close of the second quarter, that it sees challenges ahead as the world faces an economic slowdown and competition increases among manufacturers. Manufacturers such as Nokia, on the other hand, are selling high volumes of cell phones overseas, particularly in developing markets. In fact, ABI Research recently predicted that global mobile-handset sales would grow 13 percent in 2008.
Despite the good news on the global front, it's not shocking that sales in the U.S. are down. After all, more than 80 percent of Americans already own a phone, and many people are bound to two-year contracts that make it more expensive to upgrade to new phones before their contracts expire.
Still, the news of the maturing market is somewhat troubling for handset makers that depend on sales in the United States, such as Motorola.
Motorola managed to report a profit for the second quarter, mostly due to cost cutting. But its handset business, which is currently being spun out from the rest of the company, continued to drag on its financials.
In spite of these troubles, Motorola managed to just barely maintain its lead in the U.S. market during the first quarter, according to NPD. But its U.S. market share fell 6 percentage points from the first quarter and 11 percentage points compared to the same quarter a year ago.
Meanwhile, competitors LG, Research In Motion, and Samsung all gained market share.
"Quarterly unit sales of handsets fell to their lowest level since NPD began tracking the category in 2005," Ross Rubin, director of industry analysis for NPD, said in a statement. "Even so, most major manufacturers picked up market share that was lost by Motorola."
Nokia, which sells the most cell phones throughout the world, held on to a distant fourth place in the U.S. with a market share of only 9 percent.
If there is a silver lining in the U.S. handset story, it's that Americans are buying more feature-rich phones that have a higher price tag. The average selling price of phones in the U.S. reached $84, an increase of 14 percent, compared to the same quarter a year ago, NPD said. However, prices fell about 4 percent from the first quarter of 2008.
Demand for more feature-rich phones in the market is good news not only for phone manufactures, but also for wireless operators, which want to sell more data services, like text messaging and Web surfing.
The biggest growth in handsets came from devices with QWERTY keyboards. About 28 percent of all phones sold in the second quarter had this feature, compared to just 12 percent the year prior.
Smartphone sales increased to 19 percent of all mobile-phone sales in the second quarter. This was a 9 percent increase from the same period a year ago. NPD also noted that 81 percent of all phones in the second quarter were Bluetooth-enabled, compared to 69 percent last year. And 65 percent of phones sold during the quarter were music-enabled, compared to only 45 percent last year.
Motorola has picked an industry veteran to take the helm of its troubled cell phone divison.
Sanjay Jha, co-CEO and head of mobile devices for Motorola
(Credit: Qualcomm)On Monday, the company announced that Sanjay Jha will be co-chief executive and head of the mobile-device business. Motorola said earlier this year that it will separate the mobile-device business from the rest of the company. And since the split was announced, it had been searching for someone to head up the division.
Greg Brown, who only came on board as Motorola's chief executive late last year, will act as co-CEO. Brown will head up the company's broadband network division.
Jha, 45, is a smart choice for Motorola, as it tries to turn around its cell phone business. For the past 14 years, Jha has been at cell phone chipmaker Qualcomm, where he most recently ran the company's CDMA division. Qualcomm's CEO, Paul Jacobs, wished him well in a press release, saying Jha had been instrumental in helping Qualcomm become "the No. 1 wireless semiconductor supplier."
Jha will certainly have his work cut out for him. Over the past year and a half, the company has lost market share and seen its stock price plummet amid heavy losses as it struggles to find a hit product to replace the Razr. Last year, it fell from the world's second-largest supplier of handsets to third.
Last week, Motorola surprised Wall Street with a small profit for the second quarter. But the company's handset division continued to drag on earnings. Most of the gains in the second quarter came from cost cutting and from its Internet and cable businesses. Still, the company managed to hang on to its market share position, a surprising result, as many analysts had expected No. 1 Nokia and No. 2 Samsung to pick up share.
Now Motorola is looking toward the future. The company is expected to release several new phones, including ones with touch screens, in time for this year's holiday season. The hope is that these new products can help put new life into the company's tired device lineup. And with Jha at the helm of the mobile-device unit, the company can move forward with the planned split, which is expected to be complete in the third quarter of 2009.
Correction, 10:20 a.m. PDT: An earlier version of this story gave the incorrect quarter for the iPhone 3G's release. It was released in the third quarter of the calendar year.
Motorola surprised Wall Street Thursday by reporting a small profit and steady market share in its beleaguered handset business for the second quarter of 2008.
The key to Motorola's success for the quarter was cost-cutting and strong performance from businesses other than its handset division. As a result, the company was able to squeak out a $4 million profit, or less than 1 cent a share, which helped turn the tide on a year-long trend of losses. Motorola had actually forecast that it would lose about 2 cents a share.
Revenue was $8.08 billion, down from $8.73 billion. But it still beat expectations of $7.5 billion in revenue.
Motorola's Home and Networks Mobility and Enterprise Mobility divisions brought home the bacon with strong sales of $2.7 billion for Home and Networks and $2.0 billion from Enterprise Mobility.
The handset business, which narrowed its loss to $340 million from $347 million, continued to drag on the company's earnings. But surprisingly it wasn't as bad as expected.
Motorola managed to hang on to its No. 3 position in the global handset market, shipping some 28.1 million handsets during the quarter. The company had been expected to lose share to market leader Nokia and second place Samsung Electronics. But Motorola hung onto to its No. 3, mostly due to stronger sales in North America.
Again this is surprising considering that Motorola had no new, cutting-edge phones to compete against other hyped devices, such as Samsung's Instinct, which went on sale in the U.S. during the second quarter.
Motorola CEO Greg Brown told analysts and investors on a conference call that Motorola actually took share in North America due to the sale of low-cost 3G handsets. Even though Motorola hasn't had a hit since the Razr, which was introduced in 2004, people are still buying them. The company sold 3 million Razrs in the second quarter and 1 million Razr2s. And despite the hype surrounding the iPhone, Motorola still managed to sell 1 million Rokrs, the company's music-playing phone.
While Motorola may not have lost worldwide market share, it's clear the company is heavily reliant on sales in the U.S. About 48 percent of the devices the company shipped during the quarter were to the North American market, compared with only 14 percent for Asia.
Brown said that the company expects sales to fall sequentially in the third quarter as Motorola continues to lose market share abroad.
But the company is planning to release some new handsets featuring touch screens and smartphone capabilities for the holiday season, which it hopes will help revive sales in all markets.
In the meantime, the company is continuing to prepare to spin off the handset division. It's expected to complete the split in the third quarter of 2009.
Motorola also looks like it's getting ready to sell off some of the remaining pieces of its business. Earlier this week it announced plans to divide its Home and Networks Mobility unit into three distinct businesses. One business will include the company's cable set-top boxes and Internet-based video modems. Another business will include cellular network gear. And the third business will include broadband access products sold to service providers. Some experts believe this move could be a precursor to selling off each of the businesses individually.
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