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Mobile-Phone Sales in Holding Pattern


In developed markets, nowhere to go but... nowhere.

Growth in the mobile phone market is nearly flat, as consumers cut back in the credit crunch. Worse, there will be no immediate turnaround.

The market isn't contracting, but only Samsung Electronics gained market share - and that meant making price cuts.

In previous quarters, the industry has expanded at about a 10% clip overall as manufacturers and carriers scrambled to offer new equipment and services.

Christmas also looks bleak for the sector. Next year may be worse, especially in developed markets where handsets are already ubiquitous.

A reasonable bet: Sales in North America and Europe will decline next year, but emerging markets will pull the industry to modest growth. That would be down from double-digit growth posted in recent years.

Earlier this month, Nokia (NOK) forecast 13.5% market growth in the fourth quarter, weaker than prior years but healthy. The company reported annual volume growth of 27% and 21% in the first two quarters, but turned in only a 5% increase in the third quarter on weak sales in North America and Europe. The company's fourth quarter estimate may be too generous.

LG Electronics said growth slowed to 5% in the third quarter. That's down from 54% in the first quarter and 45% in the second quarter.

Motorola (MOT), the world's third-largest manufacturer of mobile phones, said handset sales declined 32% in the third quarter. Revenue from mobile phones declined 31% to $3.12 billion and the unit was the company's only money-losing business. It reported a loss of $840 million.

Motorola's share of the global handset market declined to 10% in the second quarter from 14.5% a year earlier.

Nokia claimed 39.5% of the market, followed by Samsung at 15.2%. LG claimed 8.8% of the market.

The slump in handsets comes just as manufacturers are pushing new third-generation equipment.

(AAPL) iPhone 3G includes Global Positioning System capability. The device also runs Microsoft (MSFT) Exchange for corporate e-mail and the widescreen makes it easier to check messages. Apple says the new device comes with a "desktop-class browser."

Last year, Verizon (VZ) introduced the Voyager, a device made by LG Electronics. Some called it "The Equalizer" because it was specifically designed to counter the iPhone. There's also a cheaper version, the Venus. Both come with a 2-megapixel camera, high-speed wireless connections for music and video downloads and a slot for 8GB of extra memory.

Sprint Nextel (S) countered with Samsung's Instinct handset, which was quickly called the "iPhone killer."

Verizon, Sprint Nextel and AT&T (T), which provides service for the iPhone, control about 90% of the US mobile-phone infrastructure. The companies have used the clout to maintain tight control of their networks. When customers sign up, they can use only those services the carrier offers – the so-called "walled garden" that drives many users nuts.

Research in Motion
(RIMM) entered the retail market this fall with a clamshell flip version of its BlackBerry Pearl smartphone. BlackBerry's effort to expand its business base to retail consumers put the company in direct competition with Apple, Motorola and Nokia.

The sector is highly competitive, and that's good news for users. But for now, consumers just aren't buying. The next generation of equipment is already in the pipeline, but if revenue growth continues to slow, production cycles may be extended and users may have to stick with their old standbys a bit longer than they have in the past.

That would be traumatic for those who have got be the first on their block to carry the next big thing in their pocket.

Oh, the horror, especially for shareholders who have become accustomed to robust growth.
No positions in stocks mentioned.
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