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Technical Insight

Cameras and color displays promise an end-of-year boost

Handset manufacturers are hoping that a host of new models featuring cameras, color screens and multimedia messaging capabilities will result in strong shipment numbers towards the end of 2002. But if they're wrong, it may spell a new disaster for the supply chain, writes Tim Whitaker.
Mobile handset sales could be in for a major boost as the holiday season approaches, as manufacturers start to introduce models with attractive features such as full-color screens, built-in cameras and multimedia messaging service (MMS) capabilities. Now that the industry s supply chain has stabilized, these increased sales figures should boost the demand for components such as GaAs switches and power amplifier modules and high-brightness blue and white LEDs. At present, full-color screens in handsets are liquid-crystal displays (LCDs) with white LED backlights, although organic LED displays are expected to supersede LCDs in the next few years.

Recent figures from Gartner Dataquest show that worldwide mobile phone sales totaled 98.7 million units in the second quarter of 2002. This represents a 5% increase on the 93.7 million units sold in the first quarter of the year. Most significantly, Gartner currently estimates that total handset sales will reach a record-breaking 420 million units in 2002, compared with 399.6 million in 2001 and 413 million in 2000.

As shown in the graph below, these figures indicate that handset shipments will grow by around 18% from 192.4 million in the first half of 2002 to 227.6 million in the second - a healthy rate by anyone s standards. Most of this growth will come in the fourth quarter as shoppers gear up for the holiday season. However, as shown in the table, other sources have quoted lower numbers.

Overall, Gartner says that expectations remain high for strong fourth-quarter sales worldwide, driven in part by the introduction of numerous new, low-cost terminals from leading manufacturers. The outlook is particularly bright in Western Europe. "The frenzy of marketing activity around new services such as picture and photo messaging by mobile network operators in Western Europe is likely to fuel replacement demand for color mobile phones in the second half of 2002," said Ben Wood, senior analyst for Gartner Dataquest in Europe.

New technologies and services

The replacement market is set to drive growth towards the end of 2002. Mobile phone manufacturers are preparing to introduce a whole range of new products to embrace color displays and other data-enabling technologies. Meanwhile carriers are increasingly focused on commercializing new applications and services such as MMS. These are expected to boost operator revenue across a mature subscriber base, while acting as a catalyst for replacement sales. Such 2.5G products are filling the gap left by the delay in the introduction of 3G services.

With more than a billion handsets in use throughout the world, the prospects for a very strong market for replacement models are excellent - provided that consumers want the new features on offer. This seems to be the case in Nokia s home country Finland, where June shipments increased 32% year-on-year to 111,000 units, driven by replacement sales as newer models reached retail channels.

"The replacement market is very important, especially in the saturated markets in Western Europe," said Carolina Milanesi, an analyst at Gartner Dataquest in Europe. "In the second half of this year we expect that new product introductions will encourage buyers to exchange their boring old phones for more exciting handsets with new features."

These include technologies such as full-color displays, built-in cameras and polyphonic ring tones, as well as services such as multimedia messaging. "MMS is now being introduced in Western Europe, although it won t really take off until next year," said Milanesi. "Essentially, MMS is the evolution of text messaging, allowing the user to send messages with pictures and sound attached."

One of the new generation of handsets is Nokia s 7650, which features an integrated digital camera, MMS, a color display and GPRS. Similarly, Sony Ericsson is about to launch its T300, an inexpensive color-screen phone capable of playing and downloading high-speed games, which also incorporates MMS and many other multimedia features. If this phone and other new handsets are successful, Sony Ericsson plans to push for the number-one spot in the market for multimedia phones.

At present, Nokia continues to dominate worldwide mobile phone sales. During the second quarter of 2002, Gartner estimates that Nokia sold just over 35 million handsets (a 35.6% market share), thanks to the continued competitiveness of its entry-level GSM portfolio. Motorola had 15.7%, while the manufacturer s top five was completed by Samsung (9.5%), Siemens (8.4%) and Sony Ericsson (5.4%). Samsung increased its sales by 46.4% compared with the second quarter of 2001.

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