3G to trigger smart phone adoption

November 23, 2005

According to IDC's Western European Quarterly Mobile Phone Market Tracker, the Western European mobile phone market (consisting of traditional mobile phones and converged devices) maintained healthy double digit growth in 3Q05 as shipments increased by 16% year on year and 5% sequentially to reach 39.5 million units compared to 34 million in the third quarter of 2004.

Despite a number of leading operators warning of a slowdown in subscriber growth as mobile phone penetration reaches saturation, the heavy promotion of 3G services, the introduction of new multimedia handsets as vendors extend their portfolios, further penetration of Series 60 smart phones into the consumer space, and the proliferation of low-end handsets with highly competitive ASPs, all served to accelerate market demand during the quarter. Furthermore, volume shipments of new devices ensured comprehensive early visibility and availability of devices for 4Q to meet the seasonal increase in demand and spending.

"Although 3Q lacked the impetus commonly provided by extensive handset launches, the widespread availability of popular feature phones such as the Motorola RAZR, Nokia 6230i, and Sony Ericsson K750i and W800 launched earlier in the year ensured substantial adoption largely through post pay contract renewals and handset upgrades with visibility assisted by extensive promotions," said Andrew Brown, program manager, European Mobile Devices at IDC.

A year on from 3G service launches from tier 1 operators such as Vodafone and Orange, IDC notes vendors' growing commitment to WCDMA within handset R&D in response to operator demands for handsets that meet varying segment requirements and with the capability to deliver 3G services with a lower terminal cost to a larger proportion of the existing 2.5G subscriber base.

In 3Q05, WCDMA handsets represented 12% of the total market compared to 7% in 3Q04, in line with IDC's forecast of WCDMA handset shipments in 2005 representing 13% of the total market.

IDC points to the traction that Series 60 smart phones such as the Nokia 6630 and 6680 positioned as advanced multimedia solutions have gained in operator 3G portfolios and their proportion of total WCDMA device shipments in 2005 as a key accelerator of converged device growth. In 3Q05, the market continued to exhibit comprehensive growth as converged device shipments increased by 105% year on year and 3% sequentially to reach 2.8 million units. Although the enterprise segment also witnessed an upsurge in growth during the quarter buoyed by RIM BlackBerry and HP Mobile Messenger shipments, overall growth remained dominated by the penetration of the Series 60 platform into the consumer space. In 3Q05, converged devices (including smart phones and telephony-enabled PDAs) represented 7% of the total mobile phone market in Western Europe, increasing from 4% in the corresponding quarter of 2004, predominantly due to the success Nokia has enjoyed in executing its strategy of positioning Series 60 as a highly capable multimedia platform. In forecasting converged devices' proportion of the total mobile phone market to increase to double figures in 2006, IDC points to technological advances that will drive further penetration of the mass market.

"With efficiencies in the design architecture, integration, and component requirements of advanced operating systems enabling substantial BOM cost reductions, the viability of advanced operating systems for mass market deployment is growing substantially, illustrated by Symbian's announcement of the Real Time Compatibility Layer (RTCL) enabling proprietary signaling stacks to be hosted by Symbian OS," said Geoff Blaber, research analyst, European Mobile Devices at IDC.

3Q05 Vendor Performance

Nokia - The Finnish vendor shipped a total of 14.2 million handsets in 3Q05, representing year-on-year growth of 20% and consolidating a market share of 36%. The vendor's substantial R&D capability continues to ensure that the Nokia product portfolio adapts to a market that is becoming increasingly segmented; the 6230i remaining a key contributor to shipments in 3Q05, accompanied by the 6630 and 6680 in the smart phone segment.

Samsung - Samsung witnessed substantial year-on-year growth in 3Q05, with shipments increasing by 100% to 6.2 million units and market share rising to 16%. The vendor's mid-high-end handset lineup continued to expand in the third quarter as the portfolio steadily moves towards a wider range of higher specification feature phones such as the D600 and, increasingly, converged devices with the D720 and D730.

Motorola - A year-on-year increase in shipments of 71% served to drive Motorola's market share to 15% in 3Q05 from 10% in the corresponding quarter of 2004. The high margin RAZR and the introduction of special edition versions continued to drive overall shipments, although a slowdown in A1000 shipments ahead of the A1010 launch and a disappointing performance and seemingly premature end for the MPx220 caused negative year-on-year growth for its converged devices.

Sony Ericsson - In volume terms, the Swedish vendor suffered from the strong market performance witnessed by Samsung and Motorola, with growth remaining largely flat year on year at 5% and market share declining slightly from 13% to 12% in 3Q05. However, growth in revenue is indicative of Sony Ericsson's high-end portfolio with a focus on imaging, music, and 3G, with the K750i and W800 witnessing substantial traction in 3Q05.

Similarly, despite reaching the end of its life cycle ahead of the P990 launch in 1Q06, the P910i shipped almost 140,000 units.

Siemens - The effects of the takeover of Siemens' mobile phone business by BenQ continued to influence market performance in 3Q05 as growth declined by 44% year on year for the third successive quarter, as shipments reached just 2.9 million compared to 5.2 in 3Q04 and market share declined to 7%.