Mobile Phone Sales Surged in 2004, but Slowdown Coming

Mobile phone handset sales surged in 2004, rising 32 percent over the previous year amid enhanced worldwide demand, according to a new report from Strategy Analytics.

The market research firm said 200 million cell phones were sold in the fourth quarter alone, bringing the total for the year to 684 million. Fueled by holiday sales of cheaper phones, some top vendors saw sales grow at an annual rate of nearly 50 percent in the fourth quarter, the firm said.

However, while mobile is expected to be a white-hot sector in 2005 for many reasons -- mostly favorable market changes benefiting increasingly large and powerful mobile carriers -- cell phone sales themselves will see growth slow considerably.

Slowing Growth

Strategy Analytics analyst Neil Mawston said growth for 2005 is expected to slide to around 7 percent to 735 million phones. Given that the prices at which phones are selling -- low-cost phones are supplying much of the growth -- is dropping at least that fast, it could mean flat revenue for mobile phone makers.

That would be in contrast to what is expected to be at least a good year for many mobile carriers, including the largest in the U.S. and overseas, according to other recent analyst reports. Other trends, including the emerging mainstream acceptance of mobile commerce, could help substantially boost the mobile sector.

Nokia continued to make a strong comeback in the fourth quarter as it moved new phone models to market. The Finnish firm saw its market share rise to 33.1 percent, the report said, after dipping as low as 28.5 percent earlier in 2004.

Motorola (NYSE: MOT) ranked second with a 15.9 percent market share in the report, up from 13.9 percent the quarter before. The U.S.-based company kept its lead on South Korea-based Samsung, with a 10.6 percent market share, thanks to a better range of products, Mawtson said.

LG Electronics sped past Siemens (NYSE: SI) for fourth place, while Sony (NYSE: SNE) Ericson ranked sixth.

Second Place

Gartner analyst Ben Wood told the E-Commerce Times that with Nokia firmly in the lead, any drama in the market will be over which company can grab onto second place and whether anyone can eat into Nokia's share.

"Looking at the market by quarter can show more volatility than may really be out there" as changing consumer tastes or large shipments to mobile carriers or others can skew numbers.

In general, companies that have the best range of handsets available for sale will gain market share. "Some companies have aimed for the higher-end and their margins are better, but their sales may slump at times," Wood said.

Handset makers can win market share with strong partnerships with carriers and might seek to forge partnerships that optimize their phones to accept certain kinds of content, such as streaming music. However, "having a strong portfolio of products is important," Wood said.

WiFi Worries

Separately, Strategy Analytics said some of the expected gains from next-generation mobile services, including higher-speed data services and streaming media, might be muted by free, low-cost and pay-as-you-go public WiFi access spots.

The firm said such free access points will keep a lid on demand for costlier wireless subscriptions that provide essentially the same services and could cost carriers as much as $12 billion in potential 3G revenue.

The arrival of 3G is being heralded as an opportunity to sell more services to existing mobile customers, which could be a huge boon to the profits of carriers -- and is one reason why many analysts are upbeat on the sector this year. While more widespread in Europe, the technology is expected to reach critical mass in the U.S. this year as well.

Wireless industry analyst Emma McClune said carriers have to be careful not to push too hard to bring customers to 3G.

In Europe, she told the E-Commerce Times, some carriers cut prices in bids to sign up customers and pay for investments in 3G, only to see many customers drop the service or flee to competitors later. "The public will come to 3G of their own accord and will come to the carrier that offers the best services," she said. "In the end, users will find WiFi no match."