Slowing Economy Hurting Cell Phone Sales Growth

Two analyst firms cut 2009 handset growth forecasts because economic concerns are causing fewer consumers to upgrade their phones.
The global financial slowdown may cause the cell phone market to grow at a slower rate than expected, according to forecasts from UBS and JPMorgan.

Maynard Um, an analyst from UBS, cut his 2009 handset growth estimates from 6% to 3% because of lower-than-expected global gross domestic product growth.

"We continue to believe in a tight relationship with world real GDP and device volume growth," Um said in a research note released Wednesday.

Because of financial worries, subscribers in the United States and Europe will wait longer to replace their existing handsets, Um said. Sony Ericsson has already been particularly hard hit by this trend, as it saw a 97% drop in second-quarter profits, and it is expecting a tough business conditions in 2009.

"I think that the market will continue to be challenging going into 2009. I think it's prudent to plan for a continued challenged market," said Anders Runevad, the company's global sales chief.

At JPMorgan, analyst Ehud Gelblum cut 2009 growth estimates from 8.15% to 6.1%, citing similar reasons as the UBS report. Countries like China and India are still growing markets, but the majority of those subscribers are using entry-level phones that don't have a high profit margin for the manufacturers.

Additionally, Nokia recently said it was lowering its third-quarter market-share expectations partly because of concerns over the economy. The world's largest cell phone manufacturer also said it didn't want to engage in the price slashing of entry-level handsets that some of its rivals have been doing.

UBS said Motorola and Samsung may gain in volume share for the third quarter, but both companies may show poor average selling prices and margin trends.