Midrange mobiles choked out as phone world polarises

Midrange mobile phones could soon fall by the wayside as consumers in developed markets are opting for more advanced smartphones, while wireless users in developing nations gobble up low-cost devices.

Two new market studies released this week suggest that the midrange mobile phone market is being squeezed out. Overall, mobile phone sales were down for the second quarter, according to market research firm Gartner. But sales of high-end smartphones remained high. And sales of low-cost devices are expected to explode in the coming years as more consumers in emerging markets go wireless, a recent report from Juniper Research said.

The reason cited for the sales declines in the second quarter has been the weak economy, which has battered businesses in almost every corner of the globe.

Compared to the second quarter of 2008, global sales of mobile phones were down about 6.1 per cent. This was the third consecutive quarter that fewer mobile handsets were sold worldwide when compared to the previous year. But analysts noted that the decline was at a much slower pace in the most recent quarter compared to the first quarter in 2009, in which the drop was 9.4 per cent.

Still, demand for smartphones remained high. And sales in this category actually grew 27 per cent compared to the same quarter a year ago. For several quarters now, smartphones have represented the fastest growing segment of the mobile market, and this has been in spite of a global recession.

Analysts believe the trend is the result of many consumers waiting to upgrade their phones, and those who do upgrade are gravitating toward more sophisticated smartphones.

Pricing has also likely played an important role in prompting more people to buy a smartphone over a midrange feature-phone.

In the US, smartphone prices have fallen dramatically. For example, Apple is offering its 8GB iPhone 3G phone for $99 with a two-year service contract from AT&T. Other older models of smartphones can also be bought for $99 or less with mail-in rebates and other incentives.

But it's not just the high end of the market that is expected to do well in the future. As the economy picks up again, low-cost mobile phones are also expected to sell well over the next few years. Market research firm Juniper Research predicts in a recent report that low-cost handset shipments will increase by 31 per cent in 2014.

And as smartphone sales also increase, Juniper says that the high end and low end of the mobile phone market will dominate, with these two categories accounting for 79 per cent of the mobile devices sold by 2014. Meanwhile, sales of midrange devices are expected to fall more than 41 per cent during that period.

So where will this leave handset manufacturers? Clearly, companies that have focused on smartphones, such as Apple and Research In Motion, are positioned for success. During the second quarter of 2009, RIM and Apple each increased market share in the smartphone category. RIM increased its share to 18.7 per cent, up from 17.3 per cent during the same period last year. Meanwhile Apple jumped from a share of 2.8 per cent a year ago to 13.3 per cent of the smartphone market in the second quarter of 2009.

Nokia, the largest mobile phone maker in the world, still maintained its leadership position, but the company's share has slipped. Nokia had 45 per cent of the smartphone market in the second quarter of 2009, down from a 47.4 per cent share in the second quarter of 2008.

That said, Nokia has a strong presence in the low-cost part of the market. And it's likely that the company will continue to maintain strength here, leveraging its massive scale to keep costs low.

But other phone manufacturers may struggle. While Samsung Electronics and LG Electronics have managed to take share globally, these companies will need to address both ends of what is increasingly a crowded market. Samsung increased its share to 19.3 per cent from 15.2 per cent during the second quarter, while LG's market share increased to 10.7 per cent from 8.8 per cent.

Meanwhile, Motorola and Sony Ericsson may be the two mobile phone makers most vulnerable if these trends continue. These companies have not been playing well in either market, and they have each been losing market share.

Motorola's market share fell to 5.6 per cent from 10 per cent in the second quarter of 2009. And Sony Ericsson's market share fell to 4.7 per cent from 7.5 per cent.

Original article: Smartphones and low-cost handsets to dominate market from CNET News.com