Growth of mobile phone shipments slows, revenues decline - iSuppli

El Segundo (CA) - After years of explosive growth, mobile phones manufactures may face moderate growth that cannot offset the erosion of average selling prices of cellphones. iSuppli believes that mobile phone manufacturers will see a sharp decline in revenues in 2006 and may need four years of recovery to reach the 2005 sales result.

The market research firm expects worldwide factory revenue from production of mobile phones will decline to $109.7 billion in 2006, down 4.7% from an all-time-high of $115.1 billion in 2005.

According to iSuppli, the main reason behind the expected revenue decline is a slowdown of the growth rate of mobile-phone unit production. More and more markets achieve a saturation level, which, for example stands at more than 80% in certain parts of Europe and about 65% in the US. Growth in these markets is driven by replacement sales, rather than by new subscribers, leading to slower growth, iSuppli believes.

After rising by 30% in 2003, 25.1% in 2004 and 13.6% in 2005, global mobile-phone unit production growth will decelerate to only 4.9% in 2006, rising to 850 million units, up from 810 million in 2005.

While production growth slows, the erosion of average selling prices may accelerate in 2006, iSuppli says. The average cellphone ASP is estimated to hit $129, down 9.2% from $142 in 2005. 2005 saw an 8.5% decline from $155. In 2004, ASPs decreased by just 2.7%.

Several factors are contributing to the fast decline in ASPs, according to Scott Smyser, director and principal analyst, communications and consumer electronics for iSuppli.

"Low-end, ultra-low-cost mobile phones are being pushed into emerging markets in large numbers. Meanwhile, at the high-end, wireless communications service providers are continuing to demand lower-cost 3G mobile phones in order to spur greater consumer adoption of 3G services. These two factors are driving down the overall ASP in 2005 and 2006," iSuppli analyst Scott Smyser said.

ASP erosion could settle down in 2007, with the average price estimated to decline to $128, down only 1% from 2006. The rising production of high-end 3G phones will offset continued price erosion in the mainstream segment and overall ASPs will decline by only half a percent in 2008 and 2009, iSuppli’s crystal ball indicates. Revenues will be able to slowly catch up again and top $115 billion again in 2009, according to the firm.