Mobile-Phone Revenue Set to Decline in 2006


Due to slowing growth and falling prices, worldwide mobile-phone market revenue is expected to decline in 2006, and will not recover to the peak level of 2005 until 2009, iSuppli Corp. predicts. Worldwide factory revenue from production of mobile phones will decline to US$109.7 billion in 2006, down 4.7% from US$115.1 billion in 2005, which represented the historic high for the market. Revenue growth will resume in the subsequent years, but only by single-digit percentages. By 2009, revenue will recover back to its 2005 level of US$115.1 billion.

A major factor behind the revenue contraction is the decelerating growth rate of mobile-phone unit production. With most worldwide markets saturated, growth in mobile-phone manufacturing is being driven by replacement sales, rather than by new subscribers, leading to slower growth.

After rising by 30% in 2003, 25.1 percent 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.

Growth also will slow on an absolute basis in 2006, with factory production rising by 40 million units for the year, compared to 97 million in 2005, 143 million in 2004 and 131.5 million in 2003.

Another key element in the revenue contraction is the precipitous decline in the mobile-phone Average Selling Price (ASP). The global mobile-phone ASP typically declines on an annual basis due to decreases in component costs. However, the ASP reductions are accelerating in 2005 and 2006.

The global mobile-phone ASP is expected to decline to US$129 in 2006, down 9.2% from $142 in 2005. This follows a fall of 8.5% in 2005 from US$155 in 2004. In contrast, ASPs deceased by a mild 2.7 percent in 2004.

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,” Smyser said.

However, ASP erosion will settle down in 2007, with the average price declining to US$128, down only 1% from 2006, iSuppli predicts. Pricing will decline by a mere half a percent in 2008 and 2009.

The rising production of high-end 3G phones will offset continuing pricing erosion in low-end models, leading to a slower decline in the ASP, Smyser concluded.