Cellular Replacement Cycle To Spin At CES

By Joseph Palenchar On Dec 22 2003 - 8:00am

Cellular handset suppliers will position themselves at January's CES to make the most of stepped-up handset sellthrough, which they expect to break into the double-digit percentage-growth range for the second consecutive year in 2004, following near-flat gains in 2002.

Sellthrough turned around in 2003 because of renewed net-new subscriber growth and growing replacement sales, suppliers said. In 2004, they hope to keep the replacement cycle spinning at top speed with the first megapixel-camera phones, a greater selection of push-to-talk (PTT) phones, and high-speed-data models equipped with EDGE (enhanced data rates for GSM evolution).

Exhibitors at CES will include Audiovox, Brightpoint, CellStar, Kyocera, Samsung, Sony Ericsson and Sprint PCS.

There, Kyocera and Samsung will talk up their 2004 plans for camera phones with resolutions of 1 megapixel or more. Samsung also plans its first EDGE handsets in 2004 and late-2003 shipments of its first CDMA 1X handset with PTT. For its part, non-exhibitor Nokia plans second-quarter commercial-quantity shipments of the industry's first PTT GSM handset.

For the industry as a whole, sell-through in 2003 grew about 10 percent to around 80 million units, said Samsung senior VP Pete Skarzynski in late November. He expects handset sales to increase 10 percent in 2004 to around 90 million units, with dollar volume growing around 8 percent.

Sales grew in 2003, he said, because of rising penetration expected to add more than 16 million new subscribers in 2003. Replacement sales, driven by the popularity of color screens and integrated camera handsets, are also rising, he said. Retail prices of integrated camera handsets are in the sub-$100 range, he noted.

In 2004, according to Yankee Group forecasts, camera phones will account for 20 percent of all handsets sold in the U.S., up from 5 percent in 2003. In 2005 and 2006, cameraphone share will hit 40 percent each year before rising to 50 percent in 2007, the company said.

Camera phones have already contributed to a rising handset replacement rate, according to NPD TechWorld. For the January-September period, 81 percent of handsets sold were replacement sales, and the rate rose to 84 percent in October. In October alone, 15 percent of phones sold to consumers included an integrated camera, and another 6 percent were equipped for camera attachments, the company said (see story, right).

A resumption in net-new subscriber growth in 2003 is also helping buoy sales, said product marketing VP Randy Smith. He cited the success of carriers, MVNOs (mobile virtual network operators, such as Virgin), and suppliers in using new phones and services to target first-time subscribers in the young-adult and teenage demographic segments. Camera phones are attracting housewives and other first-time subscribers, he added.

Dan Gralak, LG InfoComm sales VP, pointed to a variety of factors driving renewed handset sell-through, including the "personalization of the handsets through features, data and design." Services from the carriers — including BREW and Java downloads — are also raising demand, as are content providers such as Sony, Disney and ESPN, he said.

Many of these factors will carry momentum over into 2004, when wireless LNP will "directly affect handset manufacturer's sales in a positive manner," he noted.