Mobile Phone Sales Suffer First Negative Year

The slowdown in technology spending made its way to the mobile phone market in 2001, when the market suffered its first drop in unit sales, according to Gartner Dataquest.

Worldwide mobile phone sales totaled nearly 399.6 million units in 2001, a decline of 3.2 percent from 2000 sales, according to Dataquest. From 1996 to 2000, the mobile phone market experienced a compound annual growth rate of nearly 60 percent.

“The removal of prepaid subsidies supporting mobile terminal sales in historically high-growth markets like Western Europe and Latin America was a significant factor in the decline in handset sales during 2001,” said Bryan Prohm, senior analyst with the Mobile Communications Worldwide research group for Gartner Dataquest. “Additionally, unexpectedly strong growth in Subscriber Identity Module (SIM)-only subscriptions gave rise to a burgeoning market for second-hand terminals across the developing world.”

Worldwide sales of General Packet Radio Service (GPRS) terminals failed to meet expectations in 2001, Prohm said.

In North America, mobile phone sales were somewhat depressed by the economic recession, which caused a lack of motivation among consumers to replace existing devices. Indeed, across the mobile world, end-users with a mind to upgrade their devices appeared to be waiting for a greater selection of next-generation mobile terminals from which to choose.

While the overall industry declined, Nokia extended its lead in the market by increasing its market share to 35 percent in 2001. Gartner Dataquest analysts said fourth-quarter sales of close to 40 million units pushed Nokia’s market share to nearly 37 percent in the quarter. Motorola surpassed Nokia to capture the No. 1 position in the Chinese market, and it established itself as the leading code division multiple access (CDMA) vendor in Latin America and North America. The No. 3 position changed between the vendors each quarter in 2001, but Siemens finished the year ranked third.

Samsung showed the strongest unit sales growth among the top-tier vendors as it grew 36.8 percent. Samsung’s success was attributed to the ongoing diversification of its product portfolio, the extremely strong performance of a handful of flagship products and aggressive regional marketing and sponsorship campaigns.

Ericsson’s unit sales declined 35 percent in 2001, but the combined sales of Ericsson and Sony during 2001 were close to 34 million units. According to Gartner Dataquest analysts, the Sony-Ericsson joint venture enters 2002 from a renewed position of market share strength, and could make a run at the No. 3 spot in the market.

“The prospects for strong growth in mobile terminal sales during the first half of 2002 are not encouraging, but there are some positive signs on the horizon,” Prohm said. “For instance, consumers seemed to embrace Ericsson’s T68 during the fourth quarter of 2001, suggesting that color mobile terminals are a more significant catalyst for replacement sales than initially envisioned.”

In fact, color terminals may be the key to giving the mobile phone industry a lift. “We believe that leading manufacturers will accelerate the timetable for deployment of this feature across their 2002 product portfolios, and deliver a wide range of color terminals during the latter half of 2002,” said Ben Wood, senior analyst with the Mobile Communications Worldwide research group for Gartner Dataquest. “The pressure is on vendors to create novel, compelling mobile devices to drive replacement sales.”

A study by Micrologic Research casts a more optimistic outlook on the mobile phone industry for 2002. The Micrologic study said 2001 sales were 387 million telephones in 2001, down from 403 million in 2000, but predicts that 2002 sales will be up sharply to 462 million units.

Micrologic Research found that the number of cellular subscribers worldwide grew by 255 million in 2001 or slightly more than the 251 million subscriber additions in 2000. Subscriber growth was especially strong in Asia, where penetration rates are still low, followed by the Americas while the saturated Western European market was stagnant. Handset sales to these new subscribers were offset by a drop in the replacement market. Existing subscribers broke with the tradition of buying a new cell phone every year.

Additional findings from the Micrologic study include: China surpassed the United States in 2001 to become the world’s largest market for cellular telephone; Korea now has the world’s highest-speed nationwide cellular system; and Japan began limited deployment of a third-generation W-CDMA system, also known as UMTS, in 2001.