Is There a Mobile Phone Recession?

A Gizmodo author wrote a sobering analysis in Popular Mechanics of the CTIA conference on the wireless industry this week:

It's been nearly a year since the Apple (AAPL) fanboys first camped out to scoop up eBay-bound iPhones, and the biggest mobile players are still trying—and failing—to mount a serious challenge to its dominance of consumers' hearts and minds. While Apple was a trade show no-show for the annual wireless and telecom industry showcase here, I've been feeling their pulse pretty much everywhere while reporting live from the trenches at the Las Vegas Convention Center.

It's the trend that just won't die: Cellphone powerhouses are still forcing themselves to play catch-up to the new guy. In fact, it's become almost impossible to look at any of the major new handsets unveiled at CTIA or through our revolving gadget doors at Gizmodo without being reminded of the iPhone. While in some cases this is merely because Apple has cast such a long shadow, it's more often because other companies are intentionally mimicking the look and feel of Apple's year-old device.

My take of the slow CTIA show is actually much simpler: Nine months is not long enough for competing vendors to reverse engineer and certify a true iPhone competitor. The result: We're still seeing phones that were designed based on the original descriptions of the iPhone from January 2007, not on actual iPhone experiences. And while I think the iPhone will actually be very challenging to imitate successfully, it's too early to claim competitors will completely fail.

The result: I don't expect a mobile phone recession. But Research In Motion's earnings results announced last night do reflect a trend we can expect: profit compression due to lower prices. With consumers struggling to pay mortgage and credit card bills, I think we will see many vendors cut their prices and margins on mobile phone handsets to entice those cash-strapped consumers. The only problem: Price cutting almost never works as a long-term strategy.

At the end of the day, handset vendors will win and lose on innovation and brand value. Those that choose to compete on low prices will engage in a race to bankruptcy, not success. And if you need proof of that fact, just go ask Motorola (MOT) how competing on mobile phone prices without innovation worked out for them.

Comments

[JIM]

Considering that high-quality handsets with disruptive technology and ease of use like the iPhone are actually being used in place of laptops in increasing numbers, it's actually cost-effective to embrace this technology. Not expensive, as some have intimated.

India, for example, while not having a carrier agreement in place with Apple, is very hospitable to the iPhone due to the ubiquity of WiFi.

This will be increasingly the case for burgeoning developing countries not hindered by legacy networks.

[Barbarian]

Considering cell phone companies had decades to develop their devices ,
Yet cell phones are pretty much the same as they were 10 years ago ....
it doesn't look good for them and as of now, Apple is still ahead of the game while they work on the next iphone killer Apple is already working on a new model

[Barbarian]

on top of that, teens that used to be ok with a basic cell/mp3 player /camera phone are now looking for something more thanks to Apple for raising the bar.
Motorola is the first victim, Palm and RIMM are 2 companies that are better positioned to compete and profit from this situation.
Even though Palm is in big troubles they can come out of the slump by
introducing new low cost models

[Duff]

The only 2 vendors that have real agreements
to get a piece of monthly service revenue are Apple and RIM.
that is why they will continually make profits in this sector.
Palm
Moto
LG
Samsung are all commodities...

[Murphy]

Apple's touch screen is light years ahead. It needs a different term so people buying a Verizon touch screen phone don't think they're getting the same thing.

I agree with Barbarian. Years of lead time and the carriers and handset makers threw it away. They operate under a model of delivering the minimum. They have something they can CALL a touch screen, that's good enough for them.

[Murphy]

Apple's touch screen is light years ahead. It needs a different term so people buying a Verizon touch screen phone don't think they're getting the same thing.

I agree with Barbarian. Years of lead time and the carriers and handset makers threw it away. They operate under a model of delivering the minimum. They have something they can CALL a touch screen, that's good enough for them.

[Brewer]

Cost cutting will be APPLE's long term strategy. Once that begins, the others will REALLY be in trouble. I think Apple should continue to advertise exactly how Multi-touch works and also push that name so as to eliminate the confusion with any sort of me-too touch technology that only reads one point.

[JIM]

Apple does not want to be the low-cost leader. Makes no sense for the longevity of their business model and it's totally at odds with their ethos. All the other companies competing on price are sucking wind; some are ready to kick the oxygen habit altogether.

iPod's have per-unit yielded more revenue as time has gone forward. Expect the company to continue enhancing the desirability of their phones and inching that revenue ever-upward as well.

[ThisAuthorisanIdiot]

Did this guy listen to the RIMM conference call? They have expanding margins and guided way higher in the slowest season of the year.... Where is the profit compression in these companies?

[JIM]

.02 beat. Nothing much there.

[J Lazerow]

"The result: I don't expect a mobile phone recession. But Research In Motion's earnings results announced last night do reflect a trend we can expect: profit compression due to lower prices. "

Huh? This is not what RIM reported at all. Their earnings and revenues are growing dramatically. Carl always gets it when it comes to Apple but I have almost never seen anything written by him on RIM that made sense or came to pass.

The survivors will be the ones who deliver a great software and service experience to the end user. How do you expect any cell phone manufacturer to compete with Apple when they put a full desktop class OS in the phone with a killer UI that makes the web browser THE killer iPhone app. The cell phone guys don't know how to write great software - hence the need for WM on all "high" end smartphone devices from almost all the manufacturers. Well, the WM experience stinks. The only reason RIM will endure is because of their service and the fact that they control the device presence on the network. There is more value to this than anyone believes and can perceive at this point. The only true indication of this at this point is how good their email service is. Imagine the possibilities when physics allows them to deliver high bandwidth consumptive media.

Folks, don't get all fired about about whether AAPL or RIMM will win out - they both will KILL IT. We are in the early stages of the smartphone adoption curve.

[charanischiu]

If there is a recession of mobile phone, how come RIMM Blackberry sales almost double and market price still rising, with +2.91 US dollar stock price up yesterday?

[User 172133]

RIM sales growth is decreasing, this quarter's increase was only $210 million, 12.5% as compared to $300 ml, 22% for the Dec Q, $278ml or 25% in the Sept quarters and $950ml or 100% for the year ago Qtr.



Quarterly sales Increases have decreased, is it because of the Recession or Competition??



100% GROWTH is Long Gone, how can RIMs sales double from $6bn to 12bn, when the quarterly sales increase was only $210 ml? They would need a quarterly increase of $1.5 bn for sales to double from here. The $210ml increase is a long way off.



Total Sales for the 12 months equaled $6bn, and RIM is currently valued at $70bn, 11+ times annual sales-Priced to more than Perfection.



RIMM HIGHLY OVERVALUED_


Who would buy RIM, with sales of $6bn for $70 to 100+bn??? For earnings of $1bn? A Potential buyer could invest that $70-100bn at 6% and earn almost as much as RIM has in sales and more than RIM earned it its lifetime.


Sales-Qtr, Increases, % of Increase

QTR Ended.--SALES/ml.. INCR/Q...% INCR/Q

Mar 3, 08...$1,880........210ml.....12.5%
Dec 3, 07...$1,670........300ml....22%
Sept 3, 07..$1,370........278ml....25.%
June 3,07.....1,082.....151.5ml....16.3%
Mar 3, 07........930........ 95.3....11.4%
Dec 2, 06........835.......176.6....26.8 %
Sept 2, 06.......658....... 45.4......7.4%
Jun 3, 06.........613....... 51.8......9.2%
Mar 4, 06........561......

HUGE INCR IN MKT VALUATION, SMALL INCR IN SALES .
Sales for 12 mos ending Mar 3, 2008..........$6.0bn
Sales for 12 mos ending Dec 3, 2007.........$5.1bn



Sales Incr for the 12 Mos Ended Mar 3, 2008........$900ml



Val'n Incr'd over $12 billion in past few weeks.

[Ken Singh]

RIMM MANAGEMENT FAILED TO WARN INVESTORS ON THIS MAJOR NEGATIVE TO ITS BUSINESS MODEL:

INDIA BANS BLACKBERRY TO BLACKBERRY PUSH EAMIL/SMS SERVICE

RIMM MANAGEMENT =BUNCH OF CROOKS

Government asks operators to restrict 'certain' BlackBerry services

Wednesday, 16 April , 2008, 18:56

New Delhi: The Home Ministry has asked telecom operators not to offer “certain” BlackBerry services until a proper monitoring system is put in place, said Minister of State for Home Affairs Sriprakash Jaiswal.


“The government has issued instructions to all mobile service providers, inter alia asking them not to connect or provide/run certain BlackBerry services unless the required monitoring systems are in place,” Jaiswal said, even as he highlighted that it has not imposed restrictions on the use of BlackBerry. The Minister was answering a query in the Lok Sabha.

For more news, analysis click here>> | For more Science and Medicine news click here >>

By “certain" services the government meant that the four service providers currently offering BlackBerry services in India - Airtel, Vodafone, BPL and Reliance Communications - should temporarily stop the services between one BlackBerry to another. This is because calls and e-mails exchanged within BlackBerry handsets cannot be intercepted as the servers are based in Canada.

India has asked Research in Motion (RIM), the licensor of BlackBerry, which has over 12 million users globally, to route all its calls and e-mails through servers based in India to allow security agencies to read them as it fears its usage by terrorist outfits.

RIM officials are believed to have sought time till the end of the month to explain their position and address the issues voiced by the government.

India has also warned of “strict action” if RIM fails to come out with a viable solution to such a serious issue, telecom ministry sources said.

BlackBerry services were introduced in India in October 2004. The services came under the government's scanner last year when an application by Tata Teleservices to launch a similar service was rejected over security concerns.

[Ken Singh]

ALL HOLDERS OF "RIMM" STOCK U R WARNED

INDIA officially ordered Mobile Operators in India last night to shut Blackberry to blackberry Communication services and Management has failed to file 8k and warn Investors on major negative event , which can bust Blackberry Service Business Model World Wide.

Government asks operators to restrict 'certain' BlackBerry services

Wednesday, 16 April , 2008, 18:56

New Delhi: The Home Ministry has asked telecom operators not to offer “certain” BlackBerry services until a proper monitoring system is put in place, said Minister of State for Home Affairs Sriprakash Jaiswal.


“The government has issued instructions to all mobile service providers, inter alia asking them not to connect or provide/run certain BlackBerry services unless the required monitoring systems are in place,” Jaiswal said, even as he highlighted that it has not imposed restrictions on the use of BlackBerry. The Minister was answering a query in the Lok Sabha.

For more news, analysis click here>> | For more Science and Medicine news click here >>

By “certain" services the government meant that the four service providers currently offering BlackBerry services in India - Airtel, Vodafone, BPL and Reliance Communications - should temporarily stop the services between one BlackBerry to another. This is because calls and e-mails exchanged within BlackBerry handsets cannot be intercepted as the servers are based in Canada.

India has asked Research in Motion (RIM), the licensor of BlackBerry, which has over 12 million users globally, to route all its calls and e-mails through servers based in India to allow security agencies to read them as it fears its usage by terrorist outfits.

RIM officials are believed to have sought time till the end of the month to explain their position and address the issues voiced by the government.

India has also warned of “strict action” if RIM fails to come out with a viable solution to such a serious issue, telecom ministry sources said.

BlackBerry services were introduced in India in October 2004. The services came under the government's scanner last year when an application by Tata Teleservices to launch a similar service was rejected over security concerns.
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