- Euromonitor International : Country Sector Briefing July 2010
List of Contents and Tables Headlines... 1 Trends... 1 Competitive Landscape... 2 Prospects... 3 Category Data... 4 Table 1 Sales of Mobile Phones: Volume 2004-2009... 4 Table 2 Sales of Mobile Phones: Value 2004-2009... 4 Table 3 Sales of Mobile Phones: % Volume Growth 2004-2009... 4 Table 4 Sales of Mobile Phones: % Value Growth 2004-2009... 4 Table 5 Sales of Mobile Phones: Volume 2004-2009... 4 Table 6 Sales of Mobile Phones: Value 2004-2009... 4 Table 7 Sales of Mobile Phones: % Volume Growth 2004-2009... 5 Table 8 Sales of Mobile Phones: % Value Growth 2004-2009... 5 Table 9 Sales of Mobile Phones by Type 2004-2009... 5 Table 10 Mobile Phones Company Shares 2005-2009... 5 Table 11 Mobile Phones Brand Shares 2006-2009... 6 Table 12 Sales of Mobile Phones by Distribution Format 2004-2009... 6 Table 13 Forecast Sales of Mobile Phones: Volume 2009-2014...6 Table 14 Forecast Sales of Mobile Phones: Value 2009-2014... 6 Table 15 Forecast Sales of Mobile Phones: % Volume Growth 2009-2014... 7 Table 16 Forecast Sales of Mobile Phones: % Value Growth 2009-2014... 7! Euromonitor International Page i
MOBILE PHONES IN THE HEADLINES " Value sales of mobile phones grew by 4% in 2009 " Smart phones drove the growth of an otherwise stagnant sector " Pricing was largely flat in 2009, as companies sought to offer more features at a comparable price to draw in the upgrade market " Samsung and LG lead the standard handset subsector, while Research in Motion Ltd (RIM) and Apple compete for leadership in smart phones " Future growth will be tied to continued penetration of smart phones and increasing technology convergence that will turn a phone into a multifunctional entertainment and communication device TRENDS " The mobile phone sector saw robust growth rates over the review period. In the early part of the review period, much of the low double digit growth was driven by the increasing acceptance of the mobile phone in the. Household penetration of mobile phones rose from 87% in 2007 to 90% in 2008. While household penetration growth stabilised in 2008 and 2009, unit sales continue to grow due to the emergence of the smart phone as a next generation update to the standard voice communication device. " Over the past three years, the smart phone market has been the hottest consumer product category, with several leading technology firms making major plays in developing the next dominant smart phone operating system. Smart phone sales in the accounted for approximately 30% of all mobile phone sales in the second quarter of 2009, up from less than 10% in the same quarter of 2008. In the, the market for smart phones is dominated by three distinct operating systems Research In Motion (Blackberry), iphone and Android. Research In Motion holds the lead in operating systems with its Blackberry device, which is easily integrated with corporate email systems. While Blackberry has dominated among business users, iphone and Android have aggressively pursued the everyday consumer by offering wide ranging features like Internet access, navigation, camera, video and more. The iphone operating system is proprietary to Apple s iphone, while the Android can be found in a variety of handsets, including Motorola, Samsung and LG. " The rise of smart phones also proved a boon to independent application designers. In 2009, Apple sold or gave away 2.5 billion apps, ranging from items that help consumers find a nearby sushi restaurant to buying airline tickets, to gaming and more. Currently, Apple dominates the mobile app market, although other operating systems and hardware manufacturers are trying to catch up. Despite the push from other players, Apple should remain the preferred format for developers because its operating system and hardware hold such a large share of the market. Conversely, the Android OS is spread across multiple handsets, each of which requires an app specifically designed for it. " The mobile phone market is an attractive one for hand set manufacturers looking to cash in on consumer upgrades. It is standard operating procedure for mobile phone service operators to offer heavily subsidised phones in exchange for consumers locking themselves into long-term two year contracts. Operators in the prefer to lock their customers into long-term deals, offering subsidies that can be as high as $250. Phone subsidies are so prevalent that many companies actually offer regular wireless handsets for free. Similarly, operators sometimes waive the two year requirement for their better customers and allow them to upgrade their phone and receive a subsidy after one year. As a result, mobile phone replacement cycles are fairly short, even for the least technologically savvy customers. " While long-term contracts are popular, pay-as-you-go phone schemes have been gaining popularity, albeit from a smaller base in the. Prepaid phones account for approximately one fifth of all cell phone users in the. Long-term service contracts can be prohibitive for some because they require an adequate credit rating, which many of America s poorest consumers lack. The ongoing recession actually added more financially struggling consumers to the prepaid market. In 2009, manufacturers introduced $50 unlimited! Euromonitor International Page 1
voice, text and web deals that proved too good to pass up for many consumers. In late 2009, the retail giant Wal-Mart entered the prepaid mobile service market with the launch of Straight Talk. " When purchasing mobile phones the consumer has a wide range of demands that are tied to their lifestyle. Younger consumers want phones that look stylish and allow them to plug into their social network. Meanwhile, parents want competent phones with functional features like a camera or camcorder. Older adults and baby boomers who are not comfortable with the rush of technology often want a simple phone that works well. " Advances in camera phone technology have slowly nudged mobile phones to becoming an effective substitute for a point and shoot camera. 5-megapixel cameras and flash are becoming increasing common in smart phones. Similarly, 720p video recorders can also be found on some of the higher end phones. The much anticipated iphone 4 will feature both of these components. COMPETITIVE LANDSCAPE " Two South Korean consumer giants, LG and Samsung, lead the mobile phone market. Together the two companies accounted for just under 50% of all the mobile phones sold in the in 2009. Both companies offer a wide range of products from the basic mobile service provider subsidised free phones to the more advanced feature-rich smart phones. LG and Samsung have aggressively pursued the lucrative market between commodified free phones and expensive smart phones by developing slicker and more featurerich handsets than Motorola and Nokia, two companies that formerly dominated that market. While LG and Samsung are well known for their technological might in their home markets, both are under-represented in the booming smart phone market. Research in Motion and Apple, which only offer smart phones, have had a big jump on the Korean operators and are proving difficult to dislodge. " Whilst South Korean operators have ascended in the marketplace, Nokia and Motorola, two former giants in the market, have seen their shares in a free fall. The two firms held a combine share of 53% as recently as 2006, but have faltered dramatically since. Motorola s decline was largely driven by a failure to innovate and over-reliance on the initially successful RAZR platform. The RAZR was launched in late 2004, and its sleek shape made it an immediate success. Initially, the phone was priced at a premium due to its unique look and feel, but the company eventually started to sell the unit at a heavy discount. This commodification of the design allowed South Korean manufacturers to overtake it in terms of advanced features, while Apple surpassed it in terms of aesthetics. Redesigned RAZRs and other new phones simply did not capture consumers attention. " While Motorola failed to innovate, Nokia continued to build unique and interesting phones, but it also lost share. The company s failure in the was driven by a poor understanding of the uniqueness of the mobile phone market. Firstly, the company only manufactured phones using the GSM standard, while 43% of phone subscribers (Verizon and Spring Nextel) are on carriers that uses a CDMA format. Furthermore, the company had poor relations with mobile phone operators as it pushed its global phones in the unique American market place. The mobile service market is a virtually oligopoly, with four operators (Verizon, AT&T, T-Mobile and Sprint) accounting for almost 80% of all subscribers. As a result, phone manufacturers are often at the mercy of service operators. Manufacturers often work with operators to design the right phone for their strategy. Specifically, operators want mobile phones that encourage consumers to use and pay for additional services, such as Internet or mobile downloads. Nokia did not play along as well as other players and was left behind. The company is attempting to change its fortunes in the by placing more senior management in the market and building liaison offices near America s largest mobile phone operators. " Apple and Research In Motion (RIM) currently lag in fourth and fifth place, respectively, in overall handset volume sales. However, the two firms are firmly at the top of the booming and highly lucrative smart phone market. The two firms are coming at this segment from different directions. Research in Motion is touting its strength as a business quality phone, while Apple is positioned as a lifestyle phone. Despite its business background, RIM has been very successful in the consumer market, as many consumers have independently purchase the phones to be better connected to their job. RIM s Blackberry brand is available on a variety of networks, while Apple currently holds an exclusivity agreement with AT&T. The exclusivity with AT&T has limited Apple s potential market share and allowed it to be overtaken by Google s Android OS. Apple s agreement with AT&T and a potential jump to Verizon (the nation s leading operator) is a hot topic among technology analysts, as it could potentially open up the iphone to more users. There have been plenty of rumours about Apple s move to Verizon in the past three years; however, no move has been made to date.! Euromonitor International Page 2
" In the spring of 2010, Hewlett Packard, a PC giant, purchased Palm, a struggling maker of PDAs and smart phones. The Palm Pilot digital organiser was synonymous with business users in the 1990s and early 2000s, much like RIM s Blackberry is today. However, the company s sales have dropped as the Blackberry surpassed the Palm in terms of business functionality. The company has moved away from personal digital assistants in recent years and focused on developing a smart phone to compete with Apple, RIM and Android. While the company s operating system WebOS is seen as innovative by some tech fans, the company s Palm Pre and Palm Pixie smart phones failed to make a major impact in the smart phone market. In most cases, users were not satisfied with the hardware of the phones. At the conclusion of the acquisition, HP admitted that the company targeted the WebOS in its purchase of Palm, and that HP is looking to leverage that technology in its own mobile computing business, probably as a competitor to the rising Apple ipad. PROSPECTS " The mobile phone sector is expected to show strong growth rates over the forecast period. Even though household penetration of mobile phones has stabilised in recent years, consumers thirst for the latest mobile technology is expected to continue driving the upgrade market. Furthermore, the mobile service operators continue to show commitment to the subsidised phone and long-term contract model, which will minimise the perceived cost of mobile upgrades to most consumers. Future upgrade opportunities will include the continued proliferation of smart phone technology and the building of the 4G wireless network. " In 2009, AT&T and Verizon, two of the nation s largest mobile service carriers, went to court about 3G coverage claims. While 3G coverage is the battle now, 4G technology is expected to feature prominently over the forecast period. In the spring of 2010, Sprint, the nation s third largest operator, announced the launch of 4G network capable phones. While the company is still building its 4G network, it released a first 4G capable phone, the HTC EVO, in June 2010. Verizon Wireless and T-Mobile are also promising 4G networks towards the end of 2010, with some test markets already having 4G capabilities. Most notably, Verizon Wireless is developing its 4G capabilities on the GSM, rather than the CDMA standard. AT&T is lagging behind its competitors in the race for 4G capability. The company is banking on the fact that consumers realise that the current technology that is being rushed to market by their competitors is not a true 4G, but rather an enhanced version of 3G. AT&T is promising a more effective version of 4G sometime in 2011. " For most of 2010 and early 2011, 4G is still going to be available in very limited geographical areas. However, the emergence of 4G will be a boon to handset manufacturers, as consumers seek to take advantage of faster download speeds. The Samsung Galaxy S Pro 4G handset is set to become available sometime in 2010. " With faster download speeds on the horizon, the future of smart phones, which will process all the expected downloadable content, is bright. With the rise of the smart phone, the battle for the dominant operating system is expected to intensify over the forecast period. In the, RIM, Apple and Android are expected to fight it out for market dominance, with Symbian, Windows and Palm being left behind. RIM is currently holding the business user, Apple dominating among lifestyle users (who can put up with uneven AT&T coverage), and Android (currently available on every major network) positioning itself as an open-sourced alternative to the very secretive Apple. " Currently, RIM is the firm leader in the smart phone market, with Android passing Apple for second place in early 2010. However, these rankings could look dramatically different next year, if Apple is untethered from its exclusivity with AT&T. Since the launch of the iphone on AT&T in 2007, consumers have hoped that the phone will one day come to Verizon, which is perceived to be more reliable than AT&T. To date each rumour has been dismissed, largely because Verizon runs a CDMA rather than GSM network. The current iphone runs on GSM. However, with Verizon touting its growing 4G capability and rumours of a CDMA iphone in development, a Verizon iphone is increasingly possible. If Verizon s 4G network development is acceptable to the notoriously picky Steve Jobs, a 4G version of the iphone could appear on the Verizon network as early as June 2011. Android, which currently depends on being the alternative to Apple, is the most at risk in this environment. To succeed, the Android, and its hardware partners, must deliver innovative and consumer acceptable 4G phones before Apple s potential partnership with Verizon. " The emergence of pay-as-you-go services could potentially disrupt the cosy relationship between handset manufacturers and service providers. Pay-as-you-go currently appeals to the less well-off! Euromonitor International Page 3
consumers, but even wealthier individuals are realising that it is a good alternative. Previously, wealthier consumers were turned off by pay-as-you-go because it lacked cool phones; however, this is rapidly changing. For example, Boost mobile will soon offer the Motorola i1 smart phone powered by Android. Companies like Google, which is behind the Android operating system, and Nokia, which has had trouble in the market, stand to benefit from this development. CATEGORY DATA Table 1 Sales of Mobile Phones: Volume 2004-2009 '000 units Mobile Phones 66,556.1 87,543.1 110,228.1 120,629.4 130,309.9 134,673.5 Table 2 Sales of Mobile Phones: Value 2004-2009 $ million Mobile Phones 4,051.3 5,424.9 6,865.8 8,340.4 10,148.9 10,555.9 Table 3 Sales of Mobile Phones: % Volume Growth 2004-2009 % volume growth 2008/09 2004-09 CAGR 2004/09 TOTAL Mobile Phones 3.3 15.1 102.3 Table 4 Sales of Mobile Phones: % Value Growth 2004-2009 % current value growth 2008/09 2004-09 CAGR 2004/09 TOTAL Mobile Phones 4.0 21.1 160.6 Table 5 Sales of Mobile Phones: Volume 2004-2009 '000 units Mobile Phones 66,556.1 87,543.1 110,228.1 120,629.4 130,309.9 134,673.5 Table 6 Sales of Mobile Phones: Value 2004-2009! Euromonitor International Page 4
$ bn Mobile Phones 4.1 5.4 6.9 8.3 10.1 10.6 Table 7 Sales of Mobile Phones: % Volume Growth 2004-2009 % volume growth 2008/09 2004-09 CAGR 2004/09 TOTAL Mobile Phones 3.3 15.1 102.3 Table 8 Sales of Mobile Phones: % Value Growth 2004-2009 % current value growth 2008/09 2004-09 CAGR 2004/09 TOTAL Mobile Phones 4.0 21.1 160.6 Table 9 Sales of Mobile Phones by Type 2004-2009 % units 1G - - - - - - 2G 99.0 94.0 88.0 79.0 50.0 35.0 3G 1.0 6.0 12.0 21.0 50.0 65.0 4G - - - - - - Other - - - - - - Total 100.0 100.0 100.0 100.0 100.0 100.0 Table 10 Mobile Phones Company Shares 2005-2009 % retail volume Company 2005 2006 2007 2008 2009 Samsung America Inc 15.7 15.1 17.3 22.1 25.4 LG Electronics A 15.9 16.5 15.2 20.6 21.5 Motorola Inc 30.4 34.8 33.5 22.8 16.4 Kyocera International Inc 5.4 4.9 4.0 9.2 9.9 Research in Motion Ltd 0.7 1.1 2.5 6.0 9.0 Apple Inc - - - 4.9 7.4 Nokia United States 15.4 18.1 12.5 7.5 6.5 Sanyo North America Corp 4.3 4.2 4.5 - - Apple Computer Inc - - 1.4 - - Others 12.1 5.4 9.0 6.9 3.8 Total 100.0 100.0 100.0 100.0 100.0 Source: Trade associations, trade press, company research, trade interviews,! Euromonitor International Page 5
Table 11 Mobile Phones Brand Shares 2006-2009 % retail volume Brand Company 2006 2007 2008 2009 Samsung Samsung America Inc 15.1 17.3 22.1 25.4 LG LG Electronics A 16.5 15.2 20.6 21.5 Motorola Motorola Inc 34.8 33.5 22.8 16.4 Blackberry Research in Motion Ltd 1.1 2.5 6.0 9.0 iphone Apple Inc - - 4.9 7.4 Nokia Nokia United States 18.1 12.5 7.5 6.5 Kyocera Kyocera International Inc 4.9 4.0 4.6 5.1 Sanyo Kyocera International Inc - - 4.6 4.8 Sanyo Sanyo North America Corp 4.2 4.5 - - iphone Apple Computer Inc - 1.4 - - Others 5.4 9.0 6.9 3.8 Total 100.0 100.0 100.0 100.0 Source: Trade associations, trade press, company research, trade interviews, Table 12 Sales of Mobile Phones by Distribution Format 2004-2009 % retail volume Store-Based Retailing 96.4 95.9 95.4 95.5 95.1 94.8 Grocery Retailers 4.8 4.8 5.0 5.1 5.3 5.5 Discounters - - - - - - Hypermarkets 4.8 4.8 5.0 5.1 5.3 5.5 Supermarkets - - - - - - Non-Grocery Retailers 71.0 71.0 70.8 72.0 73.1 72.8 Electronics and 67.3 67.1 66.9 67.9 69.0 69.0 Appliance Specialist Retailers Mixed Retailers 3.7 3.9 3.9 4.1 4.1 3.8 Other store-based 20.6 20.1 19.6 18.4 16.7 16.5 retailing Non-Store Retailing 3.6 4.1 4.6 4.5 4.9 5.1 Direct Selling - - - - - - Homeshopping 0.1 0.1 0.1 0.1 0.1 0.1 Internet Retailing 3.5 4.0 4.5 4.4 4.8 5.1 Total 100.0 100.0 100.0 100.0 100.0 100.0 Table 13 Forecast Sales of Mobile Phones: Volume 2009-2014 '000 units 2009 2010 2011 2012 2013 2014 Mobile Phones 134,673.5 142,619.2 146,755.2 148,956.5 154,765.8 157,706.4 Source: Official statistics, trade associations, trade press, company research, trade interviews, Euromonitor International estimates Table 14 Forecast Sales of Mobile Phones: Value 2009-2014 $ million 2009 2010 2011 2012 2013 2014 Mobile Phones 10,555.9 11,793.6 12,511.8 12,813.8 13,127.1 13,483.5! Euromonitor International Page 6
Source: Official statistics, trade associations, trade press, company research, trade interviews, Euromonitor International estimates Table 15 Forecast Sales of Mobile Phones: % Volume Growth 2009-2014 % volume growth 2013/14 2009-14 CAGR 2009/14 TOTAL Mobile Phones 1.9 3.2 17.1 Source: Official statistics, trade associations, trade press, company research, trade interviews, Euromonitor International estimates Table 16 Forecast Sales of Mobile Phones: % Value Growth 2009-2014 % constant value growth 2009-14 CAGR 2009/14 TOTAL Mobile Phones 5.0 27.7 Source: Official statistics, trade associations, trade press, company research, trade interviews, Euromonitor International estimates! Euromonitor International Page 7