Converged Device Shipments Fail to Offset Record European Handheld Volume Declines in 2Q06

IDC: The Western European mobile device market (including standalone handhelds and converged devices) suffered a disappointing performance in the second quarter of 2006 as the total market declined by 3% year on year to total 3.3 million units. The handheld market suffered further intensification of the negative growth exhibited since 4Q05 as shipments declined by 49% year on year, while comparatively insubstantial growth for the converged device segment of just 10% year on year meant demand for devices with combined voice and data functionality failed to offset the negative growth of the handheld segment.

Although converged devices continue to exhibit healthy growth at the worldwide level, growth of 23% for Western Europe in 1H06 is indicative of a leading market that is falling short of expectations this year. Delayed product launches and portfolio transitioning for key vendors such as Motorola and Sony Ericsson has been a leading cause, further exacerbated by heightened competition from the feature phone segment in 1H06 as carefully positioned multimedia solutions served to counter the advance of converged devices into the consumer space,.

Consequently, 2Q06 saw the onus on Nokia to drive market growth continue to increase, with shipments for the Finnish vendor growing by 13% year on year to account for 74% of the converged device market compared to 72% in 2Q05. Canadian vendor RIM also maintained steady growth year on year of 34%, consolidating second position in the total mobile devices market, while the absence of any significant traction in 1H06 for alternative Symbian licensees to Nokia meant the market-leading operating system suffered flat growth of 2% year on year. In contrast, substantial growth of 210% for Qtek contributed to converged device growth of 84% for the rival Windows Mobile platform, as Microsoft's rollout of MSFP and modest growth in OEM/ODM support served to increase its share of the converged device OS landscape to 17%.

Mobile device market performance in 2Q06 is indicative of a market in the midst of a significant transition. Although handheld vendors are steadily migrating product lines towards a higher mix of converged devices, the complexities and challenges inherent in executing such a shift in strategy at a time when the handheld market is suffering sequential declines means converged devices are struggling to compensate for shrinking handheld volumes and margins. Microsoft is proving to be the biggest victim of this scenario, with comprehensive growth of 84% for Windows Mobile converged devices failing to offset substantial negative handheld growth, resulting in an overall decline of 7% in Windows Mobile device shipments from 2Q05.

All handheld vendors, with the exception of Fujitsu Siemens, suffered double-digit negative growth in 2Q06 as the handheld market declined beyond expectations at -49% year on year.

Large volumes of channel inventory resulting from comparatively high sell and low demand in recent quarters, combined with the intensification of competition from competitively priced dedicated GPS systems, fueled negative growth during the quarter, heightening IDC's expectation of vendor market withdrawals during 2006 in response to low margins and shrinking volumes,.

IDC Western European Total Mobile Device Vendor Shares, 2Q06

Vendor	2Q06	Share	2Q05	Share	Growth (YoY)
Nokia	2,175,000	66%	1,925,680	57%	13%
RIM	194,700	6%	145,770	4%	34%
Qtek	164,250	5%	53,000	2%	210%
HP	122,310	4%	163,145	5%	-25%
Palm	87,000	3%	166,250	5%	-48%
Others	567,145	17%	944,870	28%	-40%
Total	3,310,405	100%	3,398,715	100%	-3%
Source: IDC, 2006

IDC's European Mobile Devices Tracker Publ 20060802