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Slower handset growth

Week 22, 2009

Additional comments by Ovum go into the same direction. The market is now, more than before, split between lower end handsets and smart phones, meaning the mid range segment almost disappeared over a one year period. Also, many users, on a worldwide basis, are now equipped with 3G handsets, even if they don’t have a 3G subscription yet. Both factors will slow down handset replacement.

Demographics do not support handset sales either: Western Europe markets, for instance, are saturated or close to saturation, and developing countries users may postpone their purchase decisions due to economic difficulties. Ovum also anticipates users will keep their handsets for longer periods than before. All these factors lead Ovum to forecast a 1.9% CAGR (Compound Annual Growth Rate) for the handset industry until 2014. In the past, the handset industry was used to growth rates over 20% each year.

The change will undoubtedly have dramatic effects on the handset industry. We have already seen Motorola, once the industry leader, relegated to the fourth place after Nokia, Samsung and LG. Motorola handset unit has already been announced for sale several times. The ones who may benefit from the slower growth and intensified competition on the handset market are the ones with a strong smart phone positioning, such as RIM, the company behind the Blackberry, or Apple with its iPhone. Also, Chinese companies that have built a reduced cost structure like ZTE, TCL/Alcatel Mobile Phones, or Huawei will be better positioned to adapt to the bipolarization of the industry between the lower end and the smart phone.

A 1.9% handset CAGR is bad news for our industry as well. Handset replacement is one of the growth factors for SIM sales. Also, user upgrade to more powerful networks often triggers a change of SIM card.

Our SIM industry will undoubtedly be affected by the economic downturn: no one will stop making mobile phone calls, but when users postpone handset replacement or network upgrade, the SIM card demand is affected. For these reasons, SIM card manufacturers and more globally everyone in our industry has to evolve from just a SIM card offer to a full service to network operators, including OTA platform development and operation, value added services and packaging.

Thierry Spanjaard

Chief Editor

Smart Insights