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High-growth handset market faces low-cost dilemma

Jun 8, 2006 — by LinuxDevices Staff — from the LinuxDevices Archive — views

The market for mobile phones continued to expand rapidly in Q1, but it is becoming more fragmented, ABI Research reports. One important segment that manufacturers ignore at their own peril is the emerging market for ultra-low cost handsets, according to ABI's most recent market update report.

During the first quarter of 2006, handset sales showed continued strong growth, with 210 million mobile phones shipped and a 23.8 percent rise over the same period of last year. The growth has been fueled, in part, by high-end devices and smartphones. “Innovative handsets with novel features, at the right price points, are helping end users to open their wallets,” said ABI research director Jake Saunders.

Market Segmentation

But the market is showing signs of fragmentation, and this will challenge manufacturers to develop successful strategies, according to ABI Research. Innovative handsets increasingly specialize in features such as gaming, music, digital imaging, and so on. In its market analysis, ABI divides handsets into the following feature segments:

  • Voice devices
  • Lifestyle devices
  • Music devices
  • TV devices
  • Fashion devices
  • Imaging devices
  • Gaming devices
  • Business and email devices
  • Multi-purpose devices

One important subset of the voice device segment are the lowest tier, least expensive phones being adopted in huge numbers in the world's emerging phone markets, ABI says.

Sub-$40 phones a manufacturers' dilemma

“This is an incredibly important sector of the market to understand, as it is the major driver behind future subscriber and handset market growth,” says ABI. Handset makers can follow one of two strategies with regard to ultra-low-cost phones, according to ABI:

  • Address all segments, especially the low-tier market, accept less profit per handset, and aim for volume. Motorola and Nokia are cited by ABI as manufacturers who follow this strategy.
  • Disregard cheap handsets and concentrate on other, more lucrative market segments. ABI offers Sony Ericsson and Samsung as examples of companies following this strategy.

The first alternative is clearly the smarter choice, in ABI's view. The huge market share enjoyed by companies serving the low-tier market would “allow them to bully suppliers into lowering costs and providing innovative silicon approaches,” ABI suggests.

The second alternative is characterized by ABI as a “dangerous ploy: the market for these devices is far smaller than the market for lower-cost products. This is especially salient in view of the important part that low-cost devices play in developing markets, and the huge inherent potential these markets hold.”

“There is no secret about how Motorola and Nokia have grown their market share in 1Q06,” adds principal analyst Stuart Carlaw. “They have broad enough portfolios to address all market segments, as well as cost-optimized handset offerings that can take advantage of the unique market conditions in the emerging regions.”

Research availabilty

ABI Research's full report, “Cellular Handset Makers' Dilemma: Will Only Cost Optimized Products Succeed?,” is available for a cost from the company's website. Further details are here.

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