Handset Vendors - Mid-year Update
By Steve Wallage, Wed Jul 02 13:00:00 GMT 2003
How have the major handset vendors faired so far this year?
This analysis focuses on Nokia, Motorola and Samsung. They may be the three leading global players by market share, but much of the attention in the handset space is focused on Nokia, and whether it can retain its pre-eminence in this market. Three of the key issues in the first six months of 2003 were around market share and margins, the situation in Asia and especially China, and the launch of new models and the preparations for 3G.
The Market Share Game
According to Deutsche Bank, "handset pricing pressure remains intense, with Asian suppliers and ODM (Original Device Manufacturers) destined to take market share thanks in part to the widespread availability of handset reference designs." Gartner talks about over a hundred handset manufacturers. Yet the Nokia global market share is around 35-38% (depending on who you believe) and still seems to be growing.
So how is Nokia continuing to achieve market share gains? Branding, operator relationships and the right products for the right markets are some of the answers.
The key question is whether it can continue. Nokia are certainly confident. They have recently restated a long-term target of also being global #1 in CDMA handsets. In the US market, Nokia launched an amazing 17 new handsets in the first six months of the year. In its June financial statement, it suggested that, "early indications in the second quarter point towards significant market share gains in the US market."
Nokia will continue to push ahead in the camera phone market, predicting that volumes will surpass digital still camera market volumes by the middle of 2003. Already this year, five new camera phones have been launched with a focus on the low end of the market in the second half. The big push on the games market will begin on October 7 with the launch of N-Gage. The mobile games console will retail for between €250-350 in Europe.
Although most investment bankers maintain a positive outlook for Nokia, there is some concern over its ability to continue to grow its market share. Dresdner Kleinwort Wasserstein says that Nokia is, "churning out derivatives of its existing phones to attempt to control costs, (which) is a risky strategy in the long run." Carnegie Research has particular concerns on the gaming opportunity saying that, "we think the N-Gage potential is limited, partly because it is expensive compared with Nintendo, partly due to handicaps like smaller screen size, although this will improve." CIBC World Markets believes that the debate should be more about software and components saying, "Nokia and Qualcomm are engaged in a complex strategic battle - if successful, Qualcomm becomes the Intel/Microsoft of the handset and could have most of the margin in the industry by the end of the decade."
It has been an amazing achievement for Nokia to retain such a market share in a market that is now so mature. In most global electronics markets, a market share above 5% represents leadership. Simple market share figures are a crude measurement. Nokia may lose some market share but as long as this is at the commoditized end of the market, it is not so much of a concern. The real challenge is maintaining leadership at the high end and high margin markets, and continuing that leadership in 3G. It's difficult to bet against Nokia continuing its success.
By comparison, the combined Motorola and Samsung market share is around 25%, and the Motorola share seems to be still declining. According to the latest Gartner quarterly numbers it is down 2.9% (from 17.3% to 14.9%) over the last year. Bankers CIBC believe that Motorola, "continues to lose market share in handsets."
Motorola has tried to fight back. It has suggested it can get market share back to 18% by year-end. It is launching a number of new handsets throughout the year, and says it will then offer 15 GPRS color handsets.
Samsung Electronics has predicted it will sell 52.5m handsets in 2003, compared with just over 40m in 2002. Samsung believes this growth will be driven by, "color screens, ringtones and camera phones." Typical of this approach, is the SGH-P400 with built-in rotating camera and display, which will be sold by Vodafone. In the fall, Samsung will release a GPRS watch phone with a color display and Bluetooth capabilities.
In the US, where it continues to have a strong position, Samsung will soon launch the i700 Pocket PC communicator, with an integrated digital camera. In Korea, Samsung has introduced a 'TV Phone' - SCH-X820 - that accesses color TV over VHF/UHF channels. The built-in TV tuner receives broadcasts directly from the station free of charge.
Gartner suggests that Samsung and Motorola are now slugging it out for the #2 slot. Samsung appears to be better placed.
Much of the global demand for handsets has been dependent on Asian markets, and particularly China. There were signs of turbulence in the Chinese market prior to SARS. According to the Chinese Ministry of Telecommunications, Motorola's market share in China fell from 26% to 19% in the year to March 2003. And China accounts for around 25% of Motorola's handset sales. SARS sparked a second quarter profits warning from Motorola. The other major problem has been inventory build up.
By contrast, Nokia, which has undertaken major consolidation and restructuring in China over the past year, has not appeared to face the same level of problems. It is, though, also losing some market share to local players.
Longer term, the market in China still offers tremendous opportunity for Motorola and Nokia. SARS and inventory build up will be seen as short-term blips. Market loss to local players will continue. However, the massive investments made by Motorola and Nokia, the local partnerships and distribution networks, and their brand power, will ensure that this is a slow and controllable erosion of market share.
There are also other concerns in China such as the rising penetration levels, uncertain move to 3G and to which (or multiple) 3G standards, and the continued rise of PHS. The latter already accounts for nearly 20m subscribers and, as a lower cost alternative, could be used more widely to reach rural communities.
Any move to the TD-SCDMA variant of 3G could provide Samsung with the opportunity to gain traction in the Chinese market. It has formed a joint venture with Philips and Datang Mobile to develop a TD-SCDMA reference design for mobile handsets.
Nokia anticipates by the end of 2003 there will be 20 commercial 3G UMTS mobile networks operational worldwide and, "10 different UMTS handsets launched in the market by different manufacturers."
The battle for the 3G handset has not really begun. The Nokia 6650 offers seamless hand-overs between GSM and W-CDMA systems in a dual-mode network. Samsung has launched their first UMTS handset SGH-Z100.
Motorola has been a little more aggressive - promising five 3G handsets by year-end. Their first 3G handset, called the A830, was launched in March 2003 for Hutchison's 3G networks.
It will be difficult to assess the handset winners and losers until the big commercial launches in 2004.
Steve Wallage works and writes for the451. Steve has more than 13 years of experience as a technology analyst specializing in telecommunications.