Global downturn?

Global mobile device sales climbed 6 per cent in 2008, the slowest in over a decade, even though 1.2 billion handsets were sold in 2008. In the last quarter of 2008, shipments of handsets globally actually declined 5 per cent to 314.7 million from 330 million in the previous year. Even market leader Nokia, which increased its market share for the year, said its share in the last quarter shrank to 37.7 per cent.

This slowdown combined with the higher sales of low-cost, lowmargin devices in emerging markets has pushed down Nokia’s revenues and profits from devices and services (as it classifies handsets) in 2008. Revenues from devices dropped almost 7 per cent to m35 billion or Rs 2,45,000 crore (while still accounting for 70 per cent of Nokia’s revenues) in 2008 and operating profit margins fell to 16.58 per cent from 20.12 per cent in 2007.

However, Nokia and its Symbian Operating System are hurting most in the high-margin segment of smartphones—devices packed with processing power and featuring enterprise applications for businesses. The gains are going to Canada’s Research In Motion (RIM), the manufacturer of the BlackBerry. (Apple’s 3G iPhone is growing the fastest in this segment globally, although it has bombed in India.) Smartphones are an extremely profitable niche, although their sales accounted for only 11 per cent of total mobile device sales. RIM had an operating margin for its October-December 2008 quarter of 23 per cent and a net margin of 17.2 per cent, despite the first impact of the economic downturn. However, most analysts agree that this segment will see a sharp downturn in 2009 as corporate spending is squeezed and consumers shy away from expensive devices.

Nokia could gain global market share in 2009 by leveraging its India platform. However, the Finnish company should be concerned about the climb of its rivals, particularly Samsung. The Korean company, which had earlier treated the mobile division as a stepchild of its far larger consumer electronics business, has concentrated heavily in this segment to offset the impact of the slump on its other businesses. Samsung poses a threat in the value segment as well with its smartphones.

However, the biggest threat to the large players might not come from one company alone but from a host of small unbranded Chinese mobile phone manufacturers.