CES News: PMP, Cellphone Launches Hit Maturing Markets

By Joseph Palenchar -- TWICE, December 15, 2008

LAS VEGAS — Suppliers of MP3 players, portable medial player (PMPs) and cellphones will go to International CES with products they hope will spur replacement sales despite mature markets and a gloomy economic outlook.

The statistics underscore the markets' maturity. Unit sales of MP3 players and PMPs to consumers plateaued and headed down in 2008, according to Yankee Group estimates. And factory-level unit-sales growth of cellphones slowed in 2008 and could be flat in 2009, according to Strategy Analytics.

Perhaps energized by the challenges, suppliers will come to CES with replacement-encouraging strategies, including:

• a greater selection of cellphones equipped with smartphone operating systems, hard QWERTY keyboards and touchscreens. The selection of these products expanded dramatically in 2008.

• more touchscreen-equipped PMPs. At least five companies will launch their first, and one other will marry touchscreens with haptic feedback for the first time.

• new MP3 players designed to expand the market to young kids.

• new ways to differentiate PMPs, including the addition of Wi-Fi to access Internet content and Wi-Fi Internet phone calling.

The proliferation of MP3/PMP styles and features comes as household penetration of MP3 players and PMPs hit an all-time high of 45 percent in January 2008, exceeding the household penetration of surround sound, according to Consumer Electronics Association (CEA) consumer surveys. Also attesting to the market's maturity is a mid-2008 Yankee Group forecast that U.S. consumer purchases of PMP/MP3 players would fall in 2008 for the first time. Yankee forecast a 1.9 percent drop to 42.1 million units and saw annual single-digit declines for the next four years, to an annual volume of 36.3 million units in 2012.

The proliferation if music- and video-playing smartphones is also a "looming threat" to sales of MP3 players and PMPs, a Yankee Group report said. "Although fewer than 20 percent of respondents [to a mid-2008 consumer survey] indicated they would use their mobile phone as an MP3 player, multimedia handsets including the iPhone will cannibalize some of the MP3 player market."

Another factor contributing to declining MP3/PMP sales is the ability to upgrade devices via a software download, Yankee said. "Although new form factors and features required users to buy new devices, major manufacturers are continuing to support their devices with software and feature upgrades, limiting the need for device replacement." Now, Yankee said, "only those in desperate need of a new form factor really need to upgrade urgently. This dynamic extends the useful life of a product and increases the time between device purchases."

Cellphones are also going through tougher times. Cellphone purchases by consumers dropped 17.3 percent to 91 million units during the first three quarters of the year, but dollar volume declined by only 5.9 percent to $8 billion, The NPD Group found (see story below). The sales estimates, based on online consumer surveys, do not include purchases by enterprises for their employees.

Overall cellphone sales, however, might not have been so bad in 2008, according to Strategy Analytics, but growth nonetheless slowed from 2007's pace, the company's statistics show (see table). Factory-level shipments rose only 2.3 percent in the first three quarters and 1.9 percent in dollars.

Factors that supported whatever gains have been posted this year included the availability of faster 3G networks, an expanded smartphone selection, carriers' decisions to heavily subsidize data devices, and an increase in consumer adoption of messaging and browsing, said Mike Cost, president/COO of distributor Brightstar North America.