Global Handset Shipments Fall 4 Percent in Q3 2009, but Return to Growth Expected in Q4

Summary

Global handset shipments reached 291 million units worldwide in Q3 2009, down 4% from 304 million units a year earlier. Once again, the rate of decline slowed in comparison with the previous quarter, bolstering our belief that the industry is edging toward recovery. South Korean vendors Samsung and LG shipped record volumes and continued to outgrow all their major rivals. Nokia, Sony Ericsson, and Motorola underperformed and lost ground. Meanwhile, Apple's global marketshare grew to an all-time high, approaching 3%. We forecast the handset industry to return to positive growth in the fourth quarter of 2009, signaling an end to the recession.

Analysis

1.         Nokia shipped 108.5 million handsets worldwide in Q3 2009, down 8% from 117.8 million units in Q3 2008. Its growth rate underperformed the industry average for the fifth quarter in a row. Nokia’s marketshare, at 37%, fell to its lowest level since Q1 2007 as a result of declining shipments across all major regions. The United States, the world’s most important handset market, remains a particular weakspot.

Nokia’s smartphone shipments stagnated this quarter. At 16.4 million units, smartphone volumes fell 3% sequentially due to component shortages and competitive pressure from Apple, RIM and others. We estimate Nokia’s global smartphone marketshare slid to a near-term low of 36% in Q3 2009, down from 40% in Q2 2009.

2.         Samsung shipped a record 60.2 million handsets worldwide during the third quarter of 2009, up an above-average 16% from 51.8 million units a year earlier. Samsung’s marketshare is at its highest level ever, surpassing the psychologically important 20% mark. This was the first time a vendor other than Nokia has shipped more than one-fifth of the world’s handsets since Motorola’s RAZR-heyday performance of 2006. The key to Samsung’s growth has been an attractive portfolio of touchphones and an expanding retail presence across multiple regions.

3.         LG shipped an all-time-high 31.6 million handsets worldwide in Q3 2009, up 37% from a relatively weak 23.0 million units in Q3 2008. LG’s marketshare remained flat with last quarter’s record 11% share. The South Korean vendors Samsung and LG captured almost one-third of the entire global handset market between them.

Handset operating margin for LG, at 8%, was down significantly from the year-ago 12% as a result of decreased shipments to key high-margin markets of North America and South Korea. Shipments to North America, LG’s most valuable market, fell a disappointing 9% sequentially as the vendor continued to remain misaligned with the region’s growing smartphone and prepaid segments. However, strong touchphone and QWERTY phone shipments to Western Europe and increased emerging market volumes helped to offset the weakness in North America and maintain LG’s global share. LG unveiled an Android model and several Windows Mobile 6.5 devices during the quarter, in a move to develop its underperforming smartphone division.

4.         Sony Ericsson shipped 14.1 million handsets worldwide in the third quarter of 2009, falling 45% annually from 25.7 million units during Q3 2008. Growth remained below the industry average for the seventh consecutive quarter, as the vendor’s marketshare remained flat at 5%. Despite the weak performance, its 14 million units were enough to propel Sony Ericsson back into 4th position, marginally ahead of Motorola. Operating margin continued its sequential improvement over the 18% loss in the first half of the year, reaching minus 12% in Q3 2009, largely as a result of gross margin improvement. If Sony Ericsson can continue improving at this rate, bolstered by several promising new devices in Q4 2009, we estimate the vendor can return to profitability by Q3 2010.

5.         Motorola shipped 13.6 million handsets worldwide in Q3 2009, the lowest quarterly volume since Q1 2001. Shipments were down a huge 46% annually, while marketshare remained around the 5% level. Motorola’s handset division continued to make financial losses in the third quarter, but we believe the future outlook is brightening. Motorola’s cost base has been streamlined and its high-end handset portfolio has been strengthened. Motorola announced two Android smartphones, the Droid and the Cliq, and unveiled its complementary, social networking-focused MotoBlur service.

Apple shipped a healthy 7.4 million iPhones worldwide in Q3 2009, for a record marketshare of 2.5%. Volume was up just 7% from a strong 6.9 million units in Q3 2008 as the newly introduced iPhone 3GS exceeded the year-ago iPhone 3G introduction. Following the vendor’s decision to keep the earlier 3G model on the market at a lower retail price, Apple’s competitors in the smartphone market are now faced with competitive pressures on both the user-experience and the pricing fronts.

MARKET OVERVIEW

After a fourth consecutive quarter of market contraction, vendors sold 291 million handsets worldwide in Q3 2009. Falling from 304 million units a year earlier, shipments declined by 4% -- this is a notable improvement on the average decline of 11% during the previous three quarters. However, the regional picture remains mixed, with Asia stabilizing, but South America and Eastern Europe still showing weakness. Overall, Q3 2009 represented a second consecutive quarter of improving global shipment growth, and we reiterate that the industry is edging toward recovery.

Strategy Analytics forecasts 300 million handsets to be shipped worldwide in Q4 2009, growing +3% from 294 million units in Q4 2008. We believe this will be the first time the industry has returned to positive growth since Q3 2008, signalling an end to the handset recession after 4 quarters of decline.

Exhibit 1: Q3 2009 Global Handset Shipments and Market Share Estimates – Top 5 Vendors

Contact Information:

The author of this Insight, Neil Mawston, can be reached at NMawston@strategyanalytics.com / +44 1908 423 628.

Other Contacts:

Alex Spektor:                                       +1 617 614 0726                     ASpektor@strategyanalytics.com

Bonny Joy                                           +1 617 614 0708                     BJoy@strategyanalytics.com

Thomas Kang                                      +82 102874 8133                     TKang@strategyanalytics.com

Chris Ambrosio                                    +1 704 782 1957                     CAmbrosio@strategyanalytics.com

David Kerr                                            +1 262 271 8974                     DKerr@strategyanalytics.com

[1]  The Q4 2009 data are forecast estimates.