Handset Sales Set Mark, But Inventories Build

By Joseph Palenchar On Apr 2 2001 - 6:00am

NEW YORK -U.S. wireless handset sales broke another record in 2001, but according to analysts, carrier-level inventories roughly doubled by mid-March because carriers and major handset manufacturers didn't anticipate the slowing economic growth that began in the fourth quarter of 2000.

Sharp pricing on handsets and other carrier promotions have already begun, said one analyst.

At least one marketer, Panasonic Telecommunications VP Tom Bryant, agreed that inventory levels "are a problem," but he doesn't see a doubling of inventory.

Gartner Group/Dataquest analyst Brian Prohm put carrier-level inventories in mid-March at six to seven weeks from the usual two-and-a-half to three weeks.

Strategy Analytics VP David Kerr put the overhang at three to four weeks vs. the usual two weeks, and said, "Not many carriers are below that, and some are above."

Kerr said he hasn't seen a lot of price promotions yet, "but there's no doubt they are coming." Carriers will most likely promote more 2-for-1 handset deals, promote family subscription packages more heavily, offer free handsets or replaceable faceplates to clear out inventory, or offer free weekend minutes, he said.

Although sales growth slowed in the fourth quarter, "U.S. carriers reported numbers pretty much on target for Q4, give or take a percent," Kerr said. Preliminary indications are that first-quarter sales were soft, but because of the market's growth potential, he doesn't expect that softening to continue unless the economy stumbles further.

Many handset vendors are advertising more aggressively, including LG InfoComm, Siemens and Samsung, helping "offset slippage in consumer confidence," he said.

Gartner's Prohm said net subscriber additions didn't meet carrier expectations in the fourth quarter or in January and February, and as a result, carrier-level inventories grew through mid-March.

CDMA carriers have experienced the most acute buildup, primarily because TDMA carriers such as AT&T and Cingular bought more conservatively, he said. As a result, more handset models are retailing for free to $49 than before. Mid-tier models previously selling for $99 to $149 have been promoted at $49, Prohm added, and rate plans have also been discounted.

Gartner Group estimated handset sales reached between 73 million and 75 million in 2000, up 52-56 percent from 1999's 48 million. Sales were slightly above the company's projected 71 million.

For 2001, however, Gartner Group has cut its forecast to 85 million, for an increase of 16-17 percent, from an original 100 million target. Sales will pick up in the second half as the economy improves and carriers more aggressively market prepaid plans to counter sales resistance, the analyst said.

For its part, Strategy Analytics made a slight upward revision of its 2000 forecast to 63 million, up 46.5 percent from 1999's 43 million, despite the economic slowdown. "Every year for the past three to four years, analysts have underestimated growth," Kerr admitted.

In 2002, he forecasts 30 percent growth to 82 million but called the forecast "optimistic" and one that could be revised downward if the economy stumbles.

Panasonic's Bryan pointed out that the first quarter is characteristically slower than the previous quarter but that the drop-off was more pronounced this year than in past years. Carriers usually try to maintain a four- to six-week inventory, he added.