In the last few days there have been a large number of news reports about the disastrous situation in the mobile phone market. The upshot? Almost all analysts are saying the same thing — the cell phone is in decline. Here are a few highlights from the market analysts:

• Unit sales of handsets in Q1′09 are down 13% from the Q1′08
• The average operating margin of the top five handset makers has fallen to 3% for the first quarter compared to 13% a year earlier
• Forecasts for Q2′09 predict to slump 14.3%
• Sales forecast for 2009 to fall short by 10.3% over 2008
• A recovery is not expected until the second half of 2010

Norbert Hildebrand
Insight Media Analyst

All analysts agree that the inventory level has been reduced during the last 3 months from their highs at year-end 2008, but nobody reports an increase in customer demand. Are we getting tired of cell phones? If we get our phones basically for free from the provider (for signing a multiyear contract of course), why is the demand going down? We just need to go to the store when our contract runs out, pick up a new phone and sign on the dotted line (of the new contract). Is the economy to blame?

While the economy certainly has an influence on the willingness of consumers to sign new or additional contracts and may even force consumers to default on their existing contracts, there is another important aspect to consider that was not mentioned in the press releases. In the graph provided by the UN the estimate of cell phone subscribers in the world crossed the 4 billion mark in the end of 2008. For a quick check, as of 5/21/09 the estimate of all people living on this planet is about 6.9 billion. Within the same report the UN states that China and India account for around 900 million subscriptions with 2.4 billion living in these two countries.

Even without the economic crisis subscriber numbers would have started to slow down, though phone companies were hoping for multiple subscriptions making up for the lack of cell phone free people in this world. Based on around 1.1 billion handsets sold in 2008 this would mean that a handset is replaced on average every 4 years. This seems to be a reasonable number if one takes into account countries with lower average income. The expected drop of 10% in 2009 doesn’t change this picture significantly.

Let’s get to the second half of the acclamation — long live the (smart)Phone. The good news is that the smart phone is well and thriving. During the Q1′09 smart phone sales were up 12.7% over the year before and the predictions for
2009 are in the range of 10-27% growth year-over-year. Is there an advantage for the phone carriers to push this kind of phone? The answer of course is yes - data transport.

To amplify this message I have attached the picture on the right from ATT. It shows the growth of data transfer and MMS (multi media messages) from 2005 to 2009. In Q1′09, ATT alone carried over 1 billion MMS and over 94 billion text messages. Preparing to increase these numbers ATT and Verizon are offering 3G enabled netbooks for a subsidized price (remember to sign the contract) in the $100 to $200 range. Other rumors mention higher subsidies for smart phones like the expected new iPhones and brand new Blackberrys. All of the above come with larger screens than the typical mobile phone, so it’s save to assume that this will be a good thing for the display industry.

All hail the (new) king!