Cellular Sell-Through

By TWICE Staff On Jan 5 2006 - 8:00am

TWICE: How was U.S. handset sell-through in 2005? What are the growth projections for 2006?

Laikin: In terms of the unit sell-in figure, the estimated year-over-year growth is in the 20 percent range. I believe 2006 is poised for another strong growth year for the U.S. wireless handset industry.

The growth has been driven to date by a strong replacement cycle, which I believe will continue in 2006. Churn, in my opinion, remained relatively flat between 2 percent and 2.5 percent per month. New and improved feature/functionality devices with compelling data-application capability and form factor are fueling the replacement cycle. Attractive rate plans by the carriers and promotional campaigns further added to the replacement sales.

Misuraca: U.S. handset sell-through in 2005 was pretty flat with respect to overall numbers, but the handset prices seem to be creeping up again, which is definitely generating additional revenue. Growth was primarily driven by new content provided by carriers. The content must be supported through the use of new handsets.

Industry growth projections for 2006 are about 13 percent.

Skarzynski: Absolute unit growth was running in the 5 percent to 10 percent range in 2005. In dollar terms, ASPs are off 5 percent to 10 percent, which means overall marker size in dollars is roughly flat. ASPs on the CDMA side are being stabilized by the introduction of EV-DO handsets. 3G GSM handsets won't hit the market until the first half of 2006, and we likely won't see volume sales until at least the second half.

Barring no new paradigm shifts in the market, we expect 0 percent to 5 percent handset sales growth in dollars in 2006. We have already seen a slowdown in net adds. Carrier churn rates are falling as the impact of the switch to two-year contracts is being fully felt. We have seen replacement rates fall as carriers have mostly completed upgrading long-time subscribers to newer, more efficient networks. Growth is coming from “normal” churn/replacement against a higher installed base and a growing population.

Samsung is well positioned to take advantage of the shift of handset sales to upgrades/replacements for several reasons. We have traditionally targeted the mid and high tiers of the market. We have a large installed base of highly satisfied and loyal customers (as evidenced by Samsung winning Brand Key Customer Satisfaction Award four years running). When subscribers purchase new handsets, they tend to go for higher featured handsets. This is Samsung's strength. Our competitors that have been more focused on the lower end of the market will be facing challenges when their customers change handsets.

Stone: We have seen higher sell-through in 2005 compared with 2004. We've also seen a higher cost of goods and higher retail price paid by customers as replacement volumes continue to grow, driven by richer features, functionality and design.