Global Handset Sales to Outperform Expectations in 2006, Citigroup Says
Citigroup raised its global handset shipment forecast to 911 million units in 2006 from its previous 877 million units, based mostly on strong Q4 sales numbers for handset manufacturers and better-than-expected guidance for Q1 2006. Citigroup also predicted even-stronger subscriber growth and replacement rates for the year. Most of the global markets investors had expected to slow down have remained bullish in the handset sector, Citigroup said in a report late Wed., especially the surprisingly robust N. American market.
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Increased competition in N. America from MVNOs like Amp'd and ESPN will drive additional demand, a plus for the manufacturers, Citigroup said. Each new MVNO could account for 500,000-1 million new handsets shipped over 2005, and large carriers may push for “more aggressive replacements” to stave off the MVNO threat, the report said; even a 1% rise in handset replacement rates by the major carriers would account for millions of new phones each quarter. CDMA carriers like Sprint, Verizon Wireless and Alltel “finally have handsets,” Citigroup said, that are as attractive as their GSM counterparts with certain functional advantages; this could drive competitive churn as the carriers now “tout their advanced data speeds and network quality” and have the pretty phones to match.
Citigroup raised its handset shipment estimate for N. America to 173 million units, a year-over-year 3 percentage points higher than its original 168 million. Net subscriber rates are expected to remain in line with original predictions but such aggressive replacement, low N. American inventories, and the potential to see Cingular’s HSDPA roll-out means simply that more phones are going to ship than the industry expected.
Citigroup is “nudging down” its Latin American handset shipment estimate by 1 million to 112 million units shipped, however, and predicting 15% year-over-year growth rather than the original 16%. The region could show some surprising sales as handsets “continue down the cost curve” and more markets open in the region, Citigroup said, but the group fears some carriers in the area will be less aggressive in their pre-paid acquisitions. Pre- paid customers are less likely to be consistent with their renewals, while higher-APRU customers are becoming more and more attractive; this would obviously reduce handset shipments, as will the slightly above-average inventory levels for carriers in the region.
Citigroup’s Asian market estimates are slightly up, driven chiefly by India, it said. It predicts 2006 will see sales of 52 million units there, up from 2005’s 30 million. Subscriber additions in India have been so strong in recent months, and Citigroup said the growth is driven not by “one-off promotions” but expanded operator footprint, lower handset prices, an “innovative” new tariff system and general Indian economic growth. Citigroup called its improved estimate “conservative” in light of how quickly the country’s handset sales outstripped its predictions for Nov. and Dec.
Expectations for the Chinese and S. Korean market have only been tweaked, meanwhile, with China’s handset estimate slightly down and Korea’s slightly up. Stagnating penetration and state security requirements in China will reduce the number of handsets sold in 2006 to 106 million, Citigroup predicted. Low customer opinion of mobile handsets available have decreased shipments in Korea, Citigroup said, but sales should rebound in 2006 after the govt. finally allows mobile carrier handset subsidies and the hopes raised by the recent successful launch of Terrestrial Digital Multimedia Bcstg. (T-DMB). Citigroup didn’t change its estimate of 48 million units to be sold in Japan.
Europe should have big year-over-year gains in handset sales, Citigroup predicted, raising an already high bar of 309 million units sold to 324 million. As Western Europe goes 3G and higher, and Eastern Europe sees rapid penetration and consolidation, Citigroup sees the opportunity for monster handset growth in both regions. The increased competition from de-nationalized carriers in the west will result in superior service packages that will move more people to higher service tiers, resulting in 156 million units sold, Citigroup said; Eastern Europeans, Middle Easterners and Africans, meanwhile, are all beginning to see high levels of wireless penetration and should buy more handsets in 2006 than ever before.
Citigroup placed Motorola, Nokia, Qualcomm and Asian suppliers Compal, Unimicron and Jurong on its “top picks list” based on “strong product momentum” in a year where most vendors should see growth, it said.