Recession hits cellphone sales

Gartner expects mobile phone sales to reach 1.28 billion units this year. This is despite a markedly slow second quarter that saw worldwide sales reach 305 million units, which is an 11.8% increase compared to the corresponding period last year.

During the second quarter of 2007, mobile phone sales increased by 17.4% year-on-year, and more than 200 million units were moved in this period. Worldwide mobile phone sales totalled 1.15 billion units in 2007. This was fuelled mostly by the Latin American and African markets.

The research house says the slowdown in mobile sales is due to consumers becoming more cautious in their spending and those in developed countries favouring cheaper devices over high-end models. Other analysts blame the slowdown on the saturation of the market and the global recession.

BMI-TechKnowledge analyst Ryan Smit says it's likely global phone sales growth has slowed in light of the global recession.

"With the tightening of belts, many consumers are choosing to delay the purchase of goods such as cellphones, which could be seen as luxury buys rather than necessities, and choosing to keep using their old phones for a while longer," Smit says.

"It was inevitable that we would experience such a slowdown because of the large growth over the past years," says World Wide Worx MD Arthur Goldstuck.

He explains that the saturation of the market, especially in developed countries, means fewer people are buying new handsets. "Yet there is still potential in Africa. Outside of SA there is a whole continent for the cellphone industry to sell to."

Despite the global slowdown in mobile phone sales, analysts say Africa shows potential for tremendous growth. Gartner expects the entire African market to grow nearly 20% over the previous year, as it will reach 85.7 million units by the end of 2008.

Gartner senior research analyst Annette Zimmermann says the South African mobile market is expected to grow about 9% year-on-year.

"We are still expecting high growth on the African continent this year. This is mainly due to the fact that there is still a large amount of first time users coming to the markets. The majority of phones sold in this region are basic phones and enhanced phones," she says.

Analysts also say that, with the decline in mobile sales, consumers are beginning to buy low-end handsets. Zimmermann describes simple handsets as devices that have basic features such as FM radio and SMS capability, which sell at a wholesale price of up to $100.

Gartner says more vendors are becoming active in Africa and are aggressively marketing low-end packages.

"We see some Chinese vendors like ZTE becoming more active in Africa and competing at the very low end. Their brands may be less known than Nokia, but they are seeing some success addressing young people and students with their cheap offers," notes Zimmermann.

Goldstuck adds that, with market segmentation, different users prefer certain features on their handsets. He describes consumers who are downgrading their handsets as heavyweight phone users who spend more than R700 on their monthly cellphone account. "Ironically, high-end features are wasted on high-end users."