Can The Handset Industry Take The Heat?
By Mike Masnick, Fri Sep 03 00:45:00 GMT 2004

The handset industry is booming again, and it's lifting all boats. However, vendors still have plenty to be worried about.

Gartner put out second quarter handset sales numbers today and it's generating quite a bit of press. The overall news is great. Unit shipments are way up, and the major handset vendors all have some good news they can pick out of the stats. While the numbers differ slightly from IDC's recent numbers, there aren't any major surprises. Gartner's estimates give more market share to Nokia, Motorola, Siemens and Sony -- and less market share to Samsung, which might explain Samsung's need to gleefully announce that it had outsold Nokia in France.

The France announcement, though, is a bit telling. Nokia's strong showing, according to the results, suggest it was done by aggressively entering new markets in China and Latin America with lower priced phones -- while losing some ground in Western Europe, usually one of its strongest markets. It wasn't that all of Western Europe was weak, either, as replacement sales in both Europe and North America helped fuel some of the 35% overall year-to-year market growth.

The "spectacular" growth in Latin America, however, could eventually be problematic, if the industry keeps expecting to find such new markets to fuel its growth. The major fear is that such rapid growth could lead the entire industry to overheat. The industry will keep producing new phones as if this growth rate is sustainable, but any slowdown, will lead to an inventory overhang, which could harm overall sales dramatically. With that in mind, it's important to note the success in the replacement market, as that may be a better indicator of what's to come than these new markets. If the industry can continue to push upgrades (something that will be driven by more advanced features and faster networks), then it should be able to continue its growth. However, becoming overly confident that new markets will continually open up looks to be a risky strategy.