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August 1, 2003

7 Min Read
Market Snapshot: Telecommunications (web exclusive: expanded content)

Although the telecommunications industry as a whole is strong, it’s significant that every molder contacted for comment on this market segment says he no longer does much—if anything—in the telecom arena. Several commented that all the molding work they used to have in telecom has gone to China. We may not have heard the last word on that, but more on China later.

Wireless mobile phones continue to prop up the telecom market. In this sector, U.S. demand for mobile phone handsets was 79 million units in 2001 (Freedonia Group Wireless Phones Focus Report). By the start of Q4 2002, demand for mobile phones had exceeded 100 million units, according to Bryan Prohm, senior analyst with the Mobile Communications Worldwide research group for Gartner Dataquest Inc., a research and advisory firm in San Jose, CA.

Gartner’s most recent figures also show that the global mobile phone industry experienced better-than-expected sales, as worldwide units totaled 112.7 million for Q1 2003 (see Table 1). “The mobile handset industry rode the crest of a wave of robust replacement demand to realize record levels of sales to end users for the first quarter,” Prohm says. “Significant demand was recorded across all geographical regions during the quarter, and annualized sales based on these results suggest the market could be on pace for a double-digit rate increase for the full calendar year.”

The Freedonia Group’s report notes that U.S. demand for mobile handsets is projected to grow 15 percent annually to reach 155 million units in 2006. Wireless communications will continue to drive telecommunications industry growth through 2006 with projected annual gains of 10.8 percent. By 2006, the wireless segment will surpass the toll services segment of the telecommunications industry in terms of total revenues.

Hot Products
One of the hottest new products is the smartphone, which combines handheld organizers or PDAs with mobile phones. International Data Corp. (IDC), a research and analysis firm in Framingham, MA, forecasts handheld computer sales to be flat this year while smartphone sales are expected to quadruple to more than 13 million units in 2003 from around 3 million units in 2002.

Taking advantage of that wave, Palm Inc. announced on June 4 an agreement to purchase struggling Handspring Inc. for $192 million in stock. Palm was the world’s top handheld computer maker in 2002 with a 36 percent market share, according to IDC. However, it hasn’t fared as well in the smartphone market, analysts say, primarily because the company has few relationships with the telecom carriers that are the primary sellers of the devices. Handspring, with a 7 percent market share, was number three in the smartphone arena last year, behind Nokia Corp. and Motorola Inc., although other powers like Sony Corp. are moving in.

Another product currently in high demand is the mobile phone/MP3 player combination. Nokia signed a marketing agreement in June with Warner Music International to deliver music content for its 3300 mobile phone. The companies say the deal introduces a new way for music fans to legally consume music content. The 3300 was scheduled to be released in June, and includes a 64-MB multimedia memory card with short music clips. It allows real music samples for ring tones and is packaged with a CD-ROM with recordings featuring artists from Warner Music, Nokia says.

Other new products expected to be hot—particularly in mature markets such as the U.S. and Europe—include mobile phones with color screens and cameras, which will tempt consumers to replace their older models. Photo messaging is expected to be the “cornerstone service in mobile network operators’ marketing campaigns throughout the year,” notes Gartner’s report.

Cool Markets
Gartner’s Q1 2003 report shows Nokia continues to hold down the top spot in mobile phone sales, with nearly 39.5 million units sold, a 35 percent market share. That’s more than twice the number of units sold by Nokia’s nearest competitor, Motorola, which saw Q1 sales of 16.561 million units and a 14.7 percent market share compared to 16.804 million and 17.6 percent a year earlier. Motorola lowered its forecast for Q2, adding that it expects to lower projections for the full year. The company blames SARS and competition from local Chinese mobile phone manufacturers for slowing sales. (For full coverage on the impact of SARS in manufacturing, see p. 40.)

However, in a June 9 Wall Street Journal article Merrill Lynch telecom equipment analyst Tal Liani contested Motorola’s spin on the company’s situation as temporary. “Part of it is not temporary; part of it is a permanent erosion of their position in China,” Liani said. China represents approximately 25 percent of Motorola’s mobile phone sales, and 14 percent of the company’s total sales, according to the company.

Ann Liang, industry analyst with the mobile communications group for Gartner in the Asia-Pacific, concurs with Motorola’s gloomy outlook. “There’s a deepening inventory predicament in China, and there is the economic impact of [SARS] in the Asia-Pacific region and beyond,” she says. “Clearly, then, any optimism should be met with an equal measure of prudence.”

Even high-flying Nokia isn’t immune from SARS, as it issued a cautionary report that sales growth in its core mobile phone division could fall below earlier forecasts, citing not only SARS but also a weak dollar and struggling global economy as factors depressing sales in Asia.

Gartner analysts have also expressed concern over the number of vendors trying to compete in the mobile phone industry. Currently, there are more than 100 manufacturers competing in the global market, and this will result in downward pressures on average prices for mobile units as companies struggle to survive and resort to competing almost solely on price.

Gartner’s report projects that 2003 will see Motorola and Samsung duking it out for the number two spot, since Samsung’s Q1 2003 sales represented a 33.6 percent growth rate over Q1 2002.

The marriage of wireless devices

It's the never-ending story. New mobile phone products are hot! In 2003 it's the summer of the photo phone, with digital cameras embedded in cellular phones. Since the images taken with the photo phone aren't known for their high quality, and most people are at a loss over what to do with the photos once they take them, new online photo-sharing services aimed at mobile customers will solve both these problems in a flash. The new options allow a user to put the photos onto a website where anyone the user authorizes can log on and take a look.

Fuji Photo Film Co. has teamed up with AT&T Wireless Services Inc. to launch "Get the Picture" Mobile Service, allowing subscribers to send images from their phones to an online site. There, the photos can be stored, managed, and shared.

Eastman Kodak Co. and Nokia Corp. are partners in a service using Nokia's 3650 model mobile phone. Embedded in the phone menu is an instant connection to Kodak's Ofoto online photo service, where the photos can be stored and managed. Printing costs are extra.

Both services also work with most picture-taking handheld devices that use the AT&T Wireless network.

Samsung's new smartphone, the i500, is getting good reviews for its capabilities and its size-more like a normal mobile phone. The Palm-based smartphone boasts Internet functions and a better screen than most mobile phone combos on the market. It became available from Sprint on July 1 for $549, after a $50 rebate.

Sony Ericsson Mobile Communications unveiled its new T226 mobile phone in June for the American market. The T226 is a color screen, dual-band 850/1900 mHz, GSM/GPRS handset that combines imaging, entertainment, and Internet connectivity in a lightweight, easy-to-use phone. The T226 features desktop menus for fast access to games, ring tones, and picture messages.


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