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Mobile Phones Suffering from Weak Demand

The worldwide mobile phone market began 2009 with an expected sequential downturn, fueled by the ongoing worldwide recession. According to IDC, handset vendors shipped a total of 244.8 million units in the first quarter of 2009, approximately 15.8 percent lower than the 290.8 million units shipped during 1Q08.

The first quarter of a new year is typically characterized by seasonally lower shipment volumes. However, the 1Q09 decline was especially sharp due to weak end-user demand, currency volatility, and lack of credit for merchants as consumers and the supply chain adapt to the recession.

"That the worldwide mobile phone market started off 2009 with a year-over-year decline highlights just how much the economic recession has affected all industries, including the wireless market," says Ramon Llamas, senior research analyst with IDC.

The market continues to adapt to the new economic reality with both vendors and retailers exercising caution to remain profitable. In some cases, this has meant holding less inventory, or even reducing headcount.

Fortunately, new features and demand for phones will help the market resist the financial pressure. IDC expects to see further year-over-year declines worldwide, even as some regions show signs of improvement.

As the overall market dropped 15.8 percent in 1Q09, smartphones continue to grow year on year at 4 percent. Growth within this segment was evident in Western Europe, North America, and Asia/Pacific (excluding Japan). Mobile operators have become progressively more open to raising subsidies within this segment as dependence on data revenue has increased as a result of reduced consumer demand for new handsets.

"Creativity appears to be the key to success for large mobile operators during this tough time as changes to business practices from past years have become necessary," says Ryan Reith, senior research analyst with IDC.

"Some of the big operators in mature markets have shifted product portfolios, and some have smartphones accounting for as much as 50 percent of the entire handset offering. We believe this strategy will continue, along with an increase in devices that are media and messaging centric, to help operators maintain revenues."

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