Cellular Handset Makers' Dilemma: Will Only Cost Optimized Products Succeed?

ABI: After another strong quarter of growth in 1Q06 that saw 210 million mobile phones shipped and a 23.8% rise on the same period of last year, the market is showing signs of fragmentation and segmentation. This will have a significant impact upon manufacturers' strategies and will identify which vendors are best placed to benefit from these changes. Sscribes the majority of growth to replacement rates and new subscriber additions across the globe. Operators and dealers are keen to keep up the previous fourth-quarter holiday season's momentum. Innovative handsets with novel features, at the right price points, are helping end users to open their wallets. Growth in price-sensitive emerging markets, and the general segmentation of the market, pose some interesting questions for manufacturers. To meet these challenges, they have a limited set of options. They can address all segments, especially the low tier market, make less profit per handset, and aim for volume. Their huge handset market share would then allow them to bully suppliers into lowering costs and providing innovative silicon approaches that can be applied across their whole range. Alternatively, they can disregard this lower-cost segment completely and focus on lucrative niches, as is the case with Sony Ericsson. Although it will return a healthy profit per unit, this is 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. 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. When these approaches are compared to that of Samsung—which has steered away from these markets and has been fixated on slimness and functionality to the detriment of cost-optimized products—the merits of a wide portfolio and support for cost-sensitive markets come into sharp focus. Mobile Devices Research Service Publ 20060607