Cell Phone Downturn Expected in 2009, Says IDC

The impact
of the global economic crisis will spread to the mobile phone market resulting
in a downturn in shipments in 2009. According to IDC, total mobile phone
volumes will be 1.9% lower in 2009 than 2008 levels, the first downturn in
annual shipment volumes since 2001 when shipments declined 2.3%.

Over the past
several years, the mobile phone market has enjoyed double-digit annual growth
due to an increased emphasis on emerging markets. However, emerging market
growth has been steadily slowing as these markets mature. IDC now expects
worldwide growth to be just 7.1% in 2008 before slipping into negative growth
in 2009. In recent months, a number of major industry players - including
component suppliers, handset makers, and operators - have announced their
concerns about handset volumes in 2009. Most have indicated that they expect a
year-over-year decrease due to the flagging global economy.

"Nokia's
announcement was the first sign of troubles to come," said Ryan Reith,
senior analyst with IDC's Mobile Phone Tracker. "However, the real
concerns set in with announcements from the chipset vendors who supply the
industry. Qualcomm, Texas Instruments, and MediaTek are among some of the
suppliers announcing reductions in manufacturing for the upcoming year. There
is a lot of uncertainty about how the markets will fare and inventory levels
will be more of a focus point then ever before."

The
economic crunch has also affected consumer behavior, particularly consumers'
plans to purchase new devices. With less disposable income available and other
expenses competing for attention, consumers may choose to hold on to their
current devices rather than replace or upgrade them at the next possible
opportunity, usually when a service contract expires. As long as the device
functions properly, consumers may put off the replacement decision until more
funds are available. This shift in demand will reduce the need for devices from
handset vendors, much in the same way that the shift in supply will reduce the
availability of devices from handset vendors.

IDC
does not expect the downturn in mobile phone shipments to stretch past 2009. By
2010, the worldwide mobile phone market will show signs of improvement as
economic recovery plans will have taken effect. With more disposable income in
hand, consumers should feel more comfortable buying a new handset, especially
if the opportunity to purchase was delayed. Beyond that, further growth is
expected, but at a slower pace compared to the strong double-digit growth
experienced in the years prior to the decline.

Additionally,
not all segments of the mobile phone market are expected to decline. IDC expects
converged mobile devices - commonly referred to as smartphones - to grow 8.9%
worldwide in 2009. This contrasts sharply against the negative growth expected
for the entire mobile phone market. Beyond 2009, growth will return to
double-digit territory, faster than the overall mobile phone market.

"Converged
mobile devices remain a much sought-after option for many consumers,"
noted Ramon Llamas, senior analyst, Mobile Devices Technology and Trends.
"Users have come to realize what these devices can do beyond voice
telephony, especially when it comes to running applications. Take a look at how
gaming, mapping and location, entertainment, news, and social networking
applications for converged mobile devices have taken off, allowing users to do
much more than just make phone calls. In response, handset vendors have been
building their product and applications portfolios to catch this wave of
opportunity."

Lower
prices are also making converged mobile devices an attractive choice for
consumers. It was not long ago that these devices cost well above the $200
price point with a two year contract. As prices have come down in recent
quarters, these devices have become competitive alternatives to traditional
mobile phones. Faced with the option of purchasing a converged mobile device
at roughly the same price as a traditional mobile phone, consumers will be
strongly tempted by the fully featured smartphone. Continued high demand and
lower prices will keep this category growing, even as the overall market struggles.

U.S.
and Worldwide Mobile Phone Shipment Growth by Device Type, 2008-2010

Note: Percentages represent
year-over-year growth.

Source: IDC, December 2008

Taxonomy Note:

Mobile Phones - These small, battery-powered, voice-centric devices
utilize operator-provided cellular/PCS air interfaces for voice communication.
They are designed primarily, in both form factor and feature set, for a
compelling mobile telephony experience, but may also include text-messaging
capability. Mobile phones may include a headset jack for hands-free operation
as well as a variety of features, such as personal information management,
multimedia, games, or office applications. Mobile phones exist at all points
along the form factor, price point, and feature set continua.

Converged Mobile Devices
- A subset of mobile phones,
converged mobile devices feature a high-level operating system that enable the
device to run third-party applications in addition to voice telephony. Examples
of high-level operating systems include Android, BlackBerry, Linux, Mac OS X,
Palm, Symbian, and Windows Mobile. Converged mobile devices share many features
with traditional mobile phones, including personal information management,
multimedia, games, and office applications, but the presence of a high-level
operating system differentiates these devices from all others.