Mobile Phone Revs to Decline

Players in the mobile phone market shouldn’t get too comfortable. According to an iSuppli report today, slowing growth and falling prices will push revenue in the worldwide mobile-phone market down 4.7 percent in 2006 to $109.7 billion. Sales will not recover to the historic high level of $115.1 billion in 2005 until 2009, the firm said, noting that the growth will come in single digits over the next three years. A major factor behind the revenue contraction is the decelerating growth rate of mobile-phone unit production, iSuppli noted. With most worldwide markets saturated, growth in mobile-phone manufacturing is being driven by replacement sales, rather than by new subscribers, leading to slower growth. After rising by 30 percent in 2003, 25.1 percent in 2004 and 13.6 percent in 2005, global mobile-phone unit production growth will decelerate to only 4.9 percent in 2006, rising to 850 million units, up from 810 million in 2005, according to the firm’s data. Growth is also expected to slow on an absolute basis in 2006, with factory production rising by 40 million units for the year, compared to 97 million in 2005, 143 million in 2004 and 131.5 million in 2003. ISuppli further pointed to the decline in mobile-phone average selling prices (ASP) due to decreases in component costs. The global mobile-phone ASP is expected to decline to $129 in 2006, down 9.2 percent from $142 in 2005. This follows a fall of 8.5 percent in 2005 from $155 in 2004. In contrast, ASPs deceased by a mild 2.7 percent in 2004. “Low-end, ultra-low-cost mobile phones are being pushed into emerging markets in large numbers. Meanwhile, at the high-end, wireless communications service providers are continuing to demand lower-cost 3G mobile phones in order to spur greater consumer adoption of 3G services. These two factors are driving down the overall ASP in 2005 and 2006,” Scott Smyser, director and principal analyst, communications and consumer electronics for iSuppli, said in a statement. However, ASP erosion will settle down in 2007, with the average price declining to $128, down only 1 percent from 2006, iSuppli predicted. Pricing will decline by a mere half a percent in 2008 and 2009. The rising production of high-end 3G phones will offset continuing pricing erosion in low-end models, leading to a slower decline in the ASP, Smyser said.