New research indicates that manufacturers shipments of new mobile phones reached an all-time high during the fourth quarter of 2005, but experts said that increasing device saturation and demand for cheap handhelds will likely drive down profits for the gadgets this year.
According to the latest market figures published by researchers iSuppli, wireless phone shipments rose to a record level of 241.5 million units during the final four months of 2005, pushing shipments for the entire year to just over 812.5 million units.
Those results exceeded the companys previous estimate of 239 million shipments in the fourth quarter, and 810 million units for all of 2005.
iSuppli analysts said that based on their estimates, the fourth-quarter total represents the single largest volume of wireless handsets ever shipped during a single four month period, trouncing the previous record of 200 million unit shipments tracked during the final quarter of 2004.
The handset shipments for the end of 2005 represent a 15 percent gain compared to the 210 million units produced during in the third quarter of last year, representing the largest sequential gain in volume tracked by the research firm since 2003.
In terms of vendor performance, iSuppli said that top-tier manufacturers such as Nokia and Motorola continue to gain market share away from smaller players, who only represented 19 percent of all shipments.
Manufacturers outside the top-tier accounted for 25 percent of all shipments in 2004.
“This development indicates the mobile-phone market is becoming increasingly competitive, and only the big and strong [manufacturers] can survive,” said Scott Smyser, analyst with iSuppli.
Several market factors are making it much harder for smaller vendors to compete, Smyser said, namely pressure from both the top and low ends of the mobile phone market.
On one hand, emerging regions of the world are buying up the low-cost handsets most profitably built by larger companies with substantial manufacturing and marketing infrastructure, while on the other hand, customers in more established regions are looking for cutting-edge devices made specifically by the big name providers.
As a result, market leader Nokia recorded the greatest market-share growth of all phone manufacturers during the fourth quarter and for all of 2005.
The Finnish company accounted for just under 35 percent of all shipments during the fourth quarter, compared to 32 percent for the third quarter, and claimed roughly 33 percent of the market for the entire year, a gain of 3.5 percent over 2004.
iSuppli said that Motorola also posted improved numbers for 2005, accounting for just under 18 percent of all handset shipments, an increase of over 3 percent compared to the 14.7 percent of the market it represented in 2004.
Motorolas performance was driven largely by the success of its RAZR line, which accounted for approximately 30 percent of the companys fourth-quarter shipments.
Rounding out iSupplis top-tier of manufacturers for the quarter were Samsung, LG Electronics and Sony-Ericsson.
In terms of technology, iSuppli reported that devices based on GPRS (General Packet Radio Service) technology accounted for the largest volumes of all phone types in 2005, representing 51.6 percent of all shipments.
Phones using the EDGE (Enhanced Data GSM Environment) architecture increased shipments to 75 million units in 2005, posting a significant gain over a total of 25 million units in 2004.
Handhelds based on 3G Wideband Code-Division Multiple Access (W-CDMA) technology were particularly strong in Europe, driving 50 million worldwide unit shipments for the year.
Looking into 2006
Looking into 2006, Smyser predicted that EDGE and W-CDMA phone shipments will double, and that 850 million mobile handsets will be shipped for the year, a 4.6 increase compared to 2005.
Despite projecting even higher production volumes for the remainder of the year, iSuppli maintains that revenue in the mobile phone market likely peaked in 2005 and that the handset industry is not likely to see the same financial returns it recorded last year until at least 2009.
According to iSupplis estimates, worldwide factory revenue from the production of mobile phones will fall to $109.7 billion in 2006, a decrease of 4.7 percent from the $115.1 billion in revenues recorded in 2005, the industrys biggest year ever, according to iSuppli.
By 2009, the firm predicts that wireless phone manufacturers revenue will recover to that level of sales, but only after several years of smaller returns.
While mobile handset production rose by 30 percent in 2003, 25.1 percent in 2004, and 13.6 percent in 2005, the research company said that unit manufacturing will grow by less than 5 percent this year, moving from 810 million handsets shipped in 2005, to a projected 850 million handsets shipped in 2006.
The analyst said that a key factor in the decay of mobile handset revenues is the lowering of average selling prices for the devices.
While this figure typically falls each year, based on decreasing component costs, he said that price reductions will speed up in 2006 based on a number of trends.
Along with the markets demand for phone makers to lower the prices on high-end, third-generation models to spur adoption of new wireless services such as mobile video, the growing appetite for cheaper handsets in developing nations will also have a negative effect on revenues, he said.
iSuppli said that handset pricing will fall to $129 per unit in 2006, a decrease of over 9 percent from the average cost of $142 in 2005.
The research firm predicts that the pricing erosion will likely settle down in 2007, with the average price tag declining to $128 per device, a decrease of only 1 percent from 2006.
Between 2008 and 2009, the company only expects a 1 percent decrease in phone pricing.
By 2009, Smyser believes that there will be sufficient demand for more expensive third-generation phones as replacements for todays common handsets to drive market revenues above the 2005 results.
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