Thursday, March 02, 2006

Global Handset Makers Locked in Merger Dance

PC Magazine picks up a Reuters article that looks at the potential consolidation of handset manufacturers in the future due to "high research and development costs and a trend toward low-margin but high-volume phones." According to the article, the "global top five—Nokia, Motorola, Samsung Electronics, LG Electronics and Sony Ericsson—already make roughly 75 percent of all mobile phones," with another 45 vendors or so "fighting for the remaining 25 percent share."

The article points out recent partnerships (Nokia/Sanyo) and aquisitions (BenQ taking over Siemens stuggling handset unit) as some examples. Neil Mawston at Strategy Analytics said, "The winners will be a handful of mega-vendors with global economies of scale. They have such massive strengths in brand, products and distribution that it is hard to see how any competitor can overturn such power in a globally maturing market. Nokia has a huge marketing budget that most competitors can only dream of."

Some analysts predicted "Chinese and Japanese handset makers are especially at risk as they battle sliding margins and rising competition from European, American and Korean rivals." In addition, cheaper handset with slim margins will be necessary to tackle emerging markets such as India and Africa, and might require local manufacturing.

Daniel Longfield at Frost & Sullivan said, "A company like Nokia, based in Europe, will have difficulty in reducing the average price per unit which is necessary to compete in developing Asian markets. That is why Nokia is building a factory in India—to reduce both shipping costs to Asia and also greatly decrease manufacturing costs. As we move forward pricing pressures will be huge and vendors that are not able to cut costs will be unable to compete."

The article cites research from iSuppli that "estimates the average wholesale price of a mobile phone—the price paid to the manufacturer—will fall to $129 in 2006, down 9 percent from $142 in 2005."