A challenging year for telecommunication sector- IDC

MANILA, Philippines – The telecommunication sector is up for a difficult year if IDC’s latest Worldwide Mobile Phone Tracker report is any indication.

The report established a 13- percent decline in worldwide mobile phone sales during the last quarter of 2008, which, IDC warns, is only the start of more challenges to come.

According to IDC’s Worldwide Mobile Phone Tracker, vendors shipped a total of 289 million units, 12.6 percent lower than the 330.8-million units shipped during the fourth quarter of 2007. For the full year 2008, vendors shipped a total of 1.18 billion units worldwide, 3.5 percent more than the 1.14- billion units shipped in 2007.

“A combination of weak end-user demand, currency volatility, and limited credit availability prevented the market from experiencing the usual seasonal increase in shipments,” Ramon Llamas, senior research analyst with IDC’s Mobile Devices Technology and Trends team, said in his report.

“We expect the first half of 2009 to be very challenging as vendors and distributors grapple with clearing inventory. Should these conditions persist, the mobile phone market may not recover until later this year, and possibly not until 2010,” he added.

One area that clearly did well, however, was the converged mobile device segment or “smartphones” which grew 23 percent over 2007.

But even this silver lining to an otherwise gloomy market wasn’t enough to prevent the dismal fourth quarter results. Even the China market failed to offset the decline as Chinese consumers worried about the economy also held off on mobile phone purchases.

High five

IDC tracked the top five mobile vendors for 4Q08 to be — with no surprise — Nokia, Samsung, LG Electronics, Sony Ericsson and Motorola.

IDC said Nokia gave early indications that 4Q08 would be a challenging quarter due to the economic downturn, and by quarter’s end its sales for devices and services had declined nearly 27 percent from the previous year.

In addition, Nokia took the step of reducing headcount in order to lower overall costs. But during these difficult times, Nokia spelled out the need to innovate and grow, mainly by continuing to bring the Internet into mobile devices while also developing five interconnected services — maps, music, messaging, media, and games — for its handsets.

Samsung also experienced lower sales than expected due to the global recession and saw its operating margin suffer.

Despite these results, IDC found Samsung enjoying strong demand for the products where it had invested its resources, particularly touch-screen-enabled phones and converged mobile devices in developed markets as well as mid-range camera phones in emerging markets.

These three product segments will continue to be the company’s key focus in 2009 along with improving cost competitiveness.

IDC saw LG Electronics climbing into third place for the quarter and for the year. But due to sales declines within key markets, its profit margins slid back into single digits for the first time since 4Q07.

Looking ahead to 2009, the company will emphasize digital convergence on its handset portfolio, and will launch 10 new models, including an Android phone by 2Q09. In addition, its new low-tier platform will enable the company to compete aggressively in low-end markets, IDC said.

Meanwhile, Sony Ericsson slipped to fourth place during the quarter with its profitability affected by ongoing corporate restructuring, higher expenses related to sales, and a less favorable product mix, IDC said.

Even with these negative results, the company made significant investments to compete in the coming months, most notably its participation in the Open Handset Alliance (OHA) to build its converged mobile device portfolio.

Next, Sony Ericsson plans to build on its expertise in music and imaging as well as harnessing the Internet to bring more integrated mobile entertainment devices.

Finally, Sony Ericsson will expand its services arm now that it has launched its music service, PlayNow, in Sweden.

Motorola ended the quarter in fifth place, posting another quarter of operating losses driven not only by the global economic crisis, but also due to its ongoing restructuring and gaps in its product portfolio.

Motorola is now working on cost reduction, platform rationalization, and converged mobile device innovation around Android.

IDC noted that Motorola would focus its efforts on mid-range and high-end devices within the Americas and China, a major departure from the company’s strategy just two years ago.

Game plan

With clear expectations that 2009 will be more difficult than 2008, IDC is advising handset vendors, chipset manufacturers, and operators to work in sync to rebuild consumer interest in mobile spending.

“Vendors are not taking this situation lightly, and are undertaking plans to run lean and maintain user interest,” Llamas said.

“Cost reduction and operational efficiency could mean headcount reduction for some. At the same time, converged mobile devices and services will become primary targets for vendors to focus their resources. Most vendors have already signaled their intentions to concentrate on the hot converged mobile devices space by aligning with operating systems that fit their strategy. Services, meanwhile, have played only a small role in the overall market, but will see increased importance as vendors compete for the user experience,” he added.

Specifically for the Philippine telecoms industry, IDC sees the continuous rise of the fixed wireless access (FWA) broadband market, especially in terms of the number of subscribers this year.

Since 2006, the FWA market has not shown any indication of a slowdown. Strong consumer demand and continuing marketing efforts have supported the growth of FWA both within the metro area and in surrounding locations near key cities in the country.

IDC research analysts believe that with new technologies and new players coming in, this market is anticipated to grow despite the economic downturn.

Also, watch for the return of WiMAX. Three years after the National Telecommunications Commission assigned frequencies for wireless broadband standards, IDC expects worldwide interoperability for microwave access (WiMAX) in the Philippines to seriously get back into the game in 2009.

The precursors are technological developments in the device, rising demand for wireless broadband and growing requirement of some major players to differentiate themselves from more successful competitors.

With the worldwide economic downturn, IDC expects Philippine telecom companies to adapt to the changing economic environment and eventually reconsider their marketing efforts, product focus, and for some, even spending. Although IDC maintains that the telecom sector will be among the industries moderately hit by the temporary slump, most players in this field will still be reassessing their business strategies for continued growth.- Alma Buelva, Philippine Star