For the full year, IDC believes that the market will decline 13%, with the market outlook for 2009 remaining relatively consistent among the top vendors. The small signs of improvement were centered around consumer demand for high-end handsets and the manufacturers’ ability to shift portfolio to meet these needs.

“Among the big handset vendors, Nokia, Samsung, Research In Motion, and Apple, all beat expectations for smartphones within the second quarter,” said Ryan Reith, senior research analyst with IDC’s Worldwide Quarterly Mobile Phone Tracker. “This demand for high-end mobile phones has created a price war among large mobile operators and handset vendors. Apple’s price cut on the iPhone 3G reflects a trend we expect to continue in the upcoming quarters, and one that will effectively maintain competitive pricing within mature markets.”

As consumer spending has dropped, handset manufacturers and mobile operators have reduced supply on hand, which has left chip vendors with increased inventory. Inventory management has had a dramatic impact on shipments, but consumer demand is not falling as fast. Large chip vendors have been working to restructure inventory levels over the past couple of months to deal with the expected downward year and should see some stabilization once inventories are reduced.

Mature regions such as Japan, the United States and Western Europe all face tough times, with predictions of shipment declines ranging from -24.6% to -12.4% throughout 2009. In these markets, operators are struggling to find the right mix of marketing and device subsidy to entice consumers to spend while finances are tight. The double-digit growth rates the BRIC countries (Brazil, Russia, India, China) have seen in the past are also expected to slow to a collective growth rate of 0.3%. India still remains the bright spot within that group, while Russia is experiencing a severe cut back in consumer spending and is predicted to drop significantly.

“Expectations for 2009 were negative going into the fourth quarter of 2008. However, worse-than-expected results and a steady flow of negative economic news are indicating that 2009 will be gloomier than predicted,” said Ryan Reith, senior research analyst with IDC’s Worldwide Mobile Phone Tracker. “Concern is understandable during this time, but note that the mobile phone market still has plenty of room to grow on a global scale and we expect recovery will begin in the first half of 2010.”

The outlook for converged mobile devices (also known as smartphones) has also been scaled back as a result of the industry’s changing dynamics. The previously stated 8.7% growth has been reduced to 3.4% as IDC expects all segments to be effected. In the years to come the industry will undoubtedly migrate more toward the converged device segment, yet in tough economic times the high price point these devices carry can tend to stand out in the consumers eye. The notion that this segment will remain in positive growth while the industry expects an 8.3% downturn speaks volumes about the potential upside for these devices when the market turns.

“The explosive growth of mobile applications adds a new dimension to converged mobile device growth, one that has resonated with users worldwide,” says Ramon Llamas, senior research analyst with IDC’s Mobile Devices Technology and Trends team. “The success of the Apple iPhone and App Store has shifted the paradigm for consumer behavior around this category, and new mobile applications pop up every day. Now that other companies are poised to launch their own mobile application sites this year, IDC expects continued growth for converged mobile devices in the face of an challenging market overall.”

”The fourth quarter was the perfect storm of factors to produce this result,” said Ramon Llamas, senior research analyst with IDC’s Mobile Devices Technology and Trends team. ”A combination of weak end-user demand, currency volatility, and limited credit availability prevented the market from experiencing the usual seasonal increase in shipments. We expect the first half of 2009 to be very challenging as vendors and distributors grapple with clearing inventory. Should these conditions persist, the mobile phone market may not recover until later this year, and possibly not until 2010.”

If there was one highlight in 2008 it was that the converged mobile devices segment (commonly referred to as smartphones) grew 22.5% over 2007, clearly outpacing the rest of the industry.

“The mobile phone market will be under increased pressure from a number of factors that compete for users’ attention and wallets,” said Ramon T. Llamas, senior research analyst with IDC’s Mobile Device Technology and Trends team. “Disposable income is being eroded by rising food and fuel prices and worries about global financial markets and slow economic growth are creating a cautious outlook for the months ahead. Against this backdrop, many emerging markets continue to offer tremendous growth potential and IDC expects highly competitive pricing and innovative service plans will keep the overall market on track for the year.”

Demand for handsets in the low cost segment will remain present in certain emerging markets throughout 2008, driving worldwide shipment growth. In contrast, more mature regions are increasingly characterized by highly competitive markets for replacement handsets and somewhat slower shipment growth.

Vendor Highlights

Nokia once again outperformed its competitors, with total shipment volumes greater than those of the next three vendors’ combined. Keeping volumes at a high level were its entry level devices going into emerging markets, including its successful 1100 and 1200 series devices, while more fully featured devices like its 5310, 5610, and 6500 series and Nseries devices generated the most revenue and profit for Nokia. With a strong presence in emerging markets, Nokia is poised to capitalize on replacement handset opportunities in these markets.

Samsung gained further clarity as the No. 2 vendor worldwide, building its largest margin yet against Motorola. Although shipments remained even from the holiday quarter, Samsung improved its presence within key emerging markets, balancing out against soft demand in Europe and North America. In the process its decreased marketing expenses, allowing for double-digit profitability. Samsung remains confident that it will reach its goal of 200 million units shipped this year, and look to more full featured devices to be released in the months to come.

Motorola had a disappointing quarter, falling further behind Samsung and reaching shipment levels not seen since the second half of 2004. Gaps in its product portfolio left the company vulnerable, especially in the areas of music, touch, and messaging where other vendors have flourished with their own products. Further compounding its problems was another quarter of operating loss and lower operating margin. While the results speak to its ongoing difficulties, Motorola has been building a framework to turn its fortunes around with plans to separate the mobile devices business unit from the company and streamline its silicon and software platforms to bring new devices to the market later this year.

LG Electronics capitalized on Sony Ericsson’s challenges to re-take the No. 4 position for the first time since the beginning of 2006. Thanks to the continued demand of its flagship feature phones, including the Viewty, Voyager, and Venus, LG bucked the trend of seasonal decrease in shipments. In addition, LG returned to double-digit profitability. Looking ahead, LG plans to grow its presence within emerging markets and ship more high-end devices next quarter.

Sony Ericsson started off the year citing several challenges affecting its shipment volumes: diminished demand for its mid-range and high-end devices, channel inventory buildup, component shortages, and greater interest in low-price handsets in Asia/Pacific, an area where the company has not had a strong presence. Despite this dour news, the company hopes that its renewed focus on the North American market with the W350, W760, Z555, and XPeria along with several Cybershot, Walkman, and Web-ready devices around the globe will yield positive results later in the year.