Mobile Device Vendors Turn to Growth Opportunities in Emerging Markets to Combat Fall in Average Price per Unit

Frost: Manufacturers in the global handheld device market face the challenge of maintaining profitability despite slumping average price per unit. While growth in unit shipment increased by more than 14 percent over 2004, the average price per unit reduced by 7 percent per year during 2002-2004. However, device vendors must continue to focus on creating low-cost alternatives to effectively exploit burgeoning growth opportunities in developing nations.

Although mobile networks cover 80 percent of the world’s population, mobile users comprise only over 25 percent of this share . Since developed markets are mostly saturated, device vendors will find it increasingly profitable to cater to low-income consumers in emerging markets with more economical options.

Emerging markets have the potential to increase their customer base by 1.5 billion mobile users. In fact, the global mobile phone market is set to grow to 2 billion subscribers by the end of 2007, fueled by strong demand from developing economies in Asia and Latin America.

In order to offer low-cost handheld devices and maintain profitability, market participants must consider moving manufacturing centers to low-cost labor areas. For example, market leader Nokia implemented a successful cost-cutting strategy by building a multi-million dollar state-of-the-art manufacturing center in Chennai, India. Moreover, overseas production also allows device vendors to remain close to high demand areas in Asia and consequently lower transportation and shipping costs.

Partnering with up and coming regional carriers is also likely to prove critical to penetrate into local markets and gain a better understanding of the specific needs of consumers in that region.

With access to over 35 percent of the regional market, local device vendors have a significant advantage. global handset vendors can therefore combat competition from the resale market and regional participants by developing joint-venture agreements with carriers to garner the latter’s subscriber base.

While emerging markets are proving to be the ideal solution for sustaining revenues in the face of falling average price per unit, the rapid commercialization of 3G services is likely to open up new opportunities in developed markets. This commercialization is largely in terms of decreasing the average life of equipment from 25-26 months to 16-18 months, which in turn increases replacement rates.

Profitability for device vendors and carriers hinges on high-end mobile devices and the accompanying killer applications. Perennial early adopters, such as the youth market, which are the least price sensitive as well as more open to premium mobile content and applications must also be a key target for device vendors.

Global Mobile Handheld Device Market Publ 20060619