Business - Mobile phone market to shrink in 2009

Tarmo Virki

HELSINKI (Reuters) – Mobile phone sales will shrink next year at their fastest pace ever as consumers cut spending, a Reuters poll showed, with analysts increasingly concerned about unsold phones piling up in stores.

On average, the poll of 36 analysts shows global market volumes shrinking 6.6 percent next year and 5.7 percent in the fourth quarter -- traditionally the strongest period for the industry due to holiday sales.

In a similar poll in early November analysts on average forecast the market to rise 2.6 percent in 2009.

But since then Nokia, the world's top mobile phone maker, has warned twice on market growth, saying on December 4 its best guess was for sales to fall 5 percent or more next year.

"Fear and uncertainty are causing many suppliers and consumers to delay purchasing their next handsets," said Strategy Analytics' Neil Mawston.

Consumer electronics demand has slumped in the run-up to the key Christmas sales season, triggering the loss of 16,000 jobs at Sony Corp and profit warnings from Samsung Electronics Co and Texas Instruments Inc.

British electronics group Laird Plc, a component supplier for Nokia and others, on Tuesday announced the loss of 5,000 jobs, or nearly half its staff, and said it sees global handset volumes declining 10 percent next year.

Analyst estimates varied significantly due to the uncertainties over economic growth, with 2009 forecasts ranging from a market contraction of 13 percent to growth of 3 percent. Only two analysts polled expect growth next year.

"A 5-10 percent decline is the best guess at the moment," said Nordea analyst Martti Larjo. "This can move either way: if the economy continues to go downward the numbers could be worse. But while growth is not impossible, it's unlikely."

INVENTORIES WORRY

The $190 billion handset market, which was born in the 1980s and became a major growth industry after a surge in the late 1990s, had a brief shock in 2001 when the market fell 6 percent, its only contraction thus far.

Analysts said mobile phone makers may feel more pain this time around. When the market crashed in 2001, replacement sales tumbled but sales to first subscribers continued to grow due to the low penetration of mobile phones.

The European market -- where almost everybody has a phone and margins are fatter thanks to higher sales of technologically advanced phones -- is set to fall sharply this year and analysts say the trend will continue next year.

Sales volumes in emerging markets surpassed developed markets in 2005, and this year around two-thirds of sales are in emerging markets.

Mobile phone makers have had time to prepare for the market slowdown, but analysts said they were increasingly worried over the possible build-up of large inventories, just like in 2001.

"We fear that inventories could really exacerbate problems in the first quarter," said CCS Insight analyst Geoff Blaber.

"A number of vendors look set to try and reach targets set at the start of the year in a very different climate. That could result in a significant oversupply moving into the first quarter," Blaber said.

Analysts pointed to LG Electronics and Samsung Electronics as the most likely candidates to build-up inventories as they try to reach respective annual sales targets of 100 million and 200 million phones.

"We will reach 100 million units at all costs," the head of LG's telecom division said earlier this month.

LG is expected to sell fewer phones next year, but grab the No 3 spot in the market from Sony Ericsson.

The two largest vendors, Nokia and Samsung Electronics, are set to exit 2009 stronger than before, increasing their market shares to 39.6 percent and 17.3 percent respectively.

Motorola is seen losing the most market share, with the wide range of estimates, from 55 million to 100.7 million phones, reflecting the uncertainties over the company's future. (Reporting by Tarmo Virki; Additional reporting by Marie-France Han in Seoul; Editing by Sharon Lindores)