Motorola’s gloomy outlook casts shadow on mobile phone market

Monday, January 8, 2007

As rapid industrialisation has boosted disposable incomes and phone networks in emerging markets such as India and China, handset makers have tapped into growing demand. Over the past two years, China has enjoyed growth of 5 million users a month, while Indian monthly growth now averages 6 million.

The need for lower-cost models for large parts of these markets, along with intensifying competition between manufacturers, has eaten away at margins. Motorola has rattled the mobile phone industry with downbeat sales forecasts but analysts stress that surging demand in China and India will maintain a bright outlook for handset makers.

The world’s second-biggest mobile manufacturer unsettled investors by warning late on Thursday that its quarterly results would be lower than its own forecasts and those of Wall Street analysts.

The update was seen by the markets as more evidence of intense price competition with the world leader, Nokia. It suggested to many that the Finnish firm could also report a similar high-volume, low-price sales trend for its handsets.

In early trading in New York yesterday, shares in Motorola, maker of the Razr handset, were down 8% at $18.90.

Nokia shares fell 4.5% to ?15.21 and the gloomy sentiment spilled into handset suppliers in Britain such as the chip designer Arm Holdings and the Bluetooth specialist CSR. The two Cambridge-based firms closed down 3% at 122p and 4.2% at 615p respectively, as analysts predicted that companies supplying handset makers would have to charge less.

“CSR does produce industry-beating power consumption. However, it has been our contention for a while that they will have to bring down that premium pricing, especially in handsets and especially given some of the pricing competition we are seeing between the top two, Motorola and Nokia in particular, in emerging markets,” said Lee Simpson, an analyst at Evolution Securities.

As rapid industrialisation has boosted disposable incomes and phone networks in emerging markets such as India and China, handset makers have tapped into growing demand. Over the past two years, China has enjoyed growth of 5 million users a month, while Indian monthly growth now averages 6 million.

The need for lower-cost models for large parts of these markets, along with intensifying competition between manufacturers, has eaten away at margins.

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Source: The Guardian (link opens in a new window)