Q2 Mobile Phone Production Accelerates, iSuppli Reports

Online staff -- Electronic News, 6/30/2005

After suffering the typical seasonal slowdown in Q1, mobile-phone unit production is expected to rise sequentially in Q2, continuing for the rest of the year, iSuppli Corp. predicted today.

Mobile phone production in Q1 was 173 million units, down 13 percent from 200 million units in Q4 2004, but up 2.4 percent compared to the 169.5 million units in Q1 2004, the El Segundo, Calif.-based firm continued.

Q2 is shaping up to be better than Q1, with production of 180.5 million mobile phones, up 4 percent from Q1, and 7.1 percent higher than Q2 2004. Shipments are expected to rise 5.3 percent sequentially to 190 million units in Q3, and 8.4 percent higher in Q4 to 206 million, the firm also said.

After rising 25 percent in 2004, mobile-phone unit production growth will taper off this year as production rises to 750 million units for the year, up about 5 percent from 713 million units in 2004, iSuppli predicted.

While growth is decelerating this year, a shipment level of more than 700 million units is vast—no matter what the product. With such a huge quantity, the law of large numbers begins to take effect, and a major growth margin becomes difficult or impossible to achieve.

Given that mobile phone production growth is driven by purchases by new subscribers and by buying of replacement handsets, combined with the fact that some regions of the world are becoming saturated, developing nations such as China and India are expected to continue to see strong subscriber growth, the firm noted.

Also, Latin America is a region where mobile phone penetration is low and offers opportunities for growth.

Worldwide mobile phone subscribers are set to rise to 1.9 billion this year, up from 1.6 billion in 2004, iSuppli predicts.

Even with subscriber growth, mobile phone shipments this year and in subsequent years increasingly will be driven by replacement or upgrade sales with annual subscriber growth to decline from 17.8 percent this year to the low single digits by 2009. Therefore, upgrade phones will become a larger part of the more than 700 million handsets shipped each year. Upgrade phones will account for 62 percent of all handsets sold this year. In 2009, upgrades will account for almost 83 percent of mobile phones sold, iSuppli believes.

New Features Spur Upgrades

Upgrade sales are being driven by phones that support new standards, features and functionality such as CDMA2000 1xEV-DO and W-CDMA, which are 3G standards that offer more bandwidth and higher data rates than existing 2G and 2.5G systems.

The number of CDMA2000 1xEV-DO subscribers is steadily increasing in Korea and North America. W-CDMA has finally broken out of Japan and is now adding subscribers at a healthy clip in Europe. iSuppli remains bullish on W-CMDA subscriber growth and mobile-phone production this year, with 55 million W-CDMA handsets expected to be shipped. New features and functions are being added to handsets that enable service providers to offer enhanced services to consumers.

Embedded cameras, which allow consumers to snap photos and send them over the cellular network to friends and family, were in 32.5 percent of mobile phones in 2004 and will be in 85 percent in 2009, according to iSuppli. A secondary camera is now being implemented in phones to allow for video conferencing.

MP3 music playback capability is the next consumer-electronics feature being embedded in mobile phones. MP3 penetration in handsets is expected to amount to 15 percent this year, and will rise to 50 percent in 2009, iSuppli predicts.

Mobile-phone makers also are embedding digital TV tuners into mobile phones, allowing them to pick up TV broadcasts. In Korea, network infrastructure is already in place and phones have started shipping supporting digital TV reception, the firm concluded.