Declining margins for handset makers

Telecom Asia Staff
16 Jul 2009

Operating margins at the largest mobile handset vendors declined in the last year, from 13% a year ago to 4% in the first quarter of this year. Wireless Intelligence reports that vendors face major financial pressures as they seek to maintain profits in the economic downturn.

The top five vendors -- Nokia, Samsung, Sony Ericsson, Mororola and LG -- continue to invest in product portfolios and have increased spending on research and development and marketing. R&D expenditures have increased from 10% in Q1 2008 to 12% in Q1 2009. Marketing costs have increased from 9% to 10% in the same period.

Such expenditure growth comes at a time when demand is slowing and margins declining. The top five vendors shipped 191 million devices in the first quarter of 2009, down 19% from last year's figure of 236 million. Nokia and other vendors anticipate another 10% decline in shipments through the end of this year, with figures flat sequentially and down year-on-year. Of the big five, only Samsung and LG saw positive revenue growth in the first quarter of this year. Most vendors have, consequently, seen profits decline.

Wireless Intelligence expects vendors to seek profitability by cutting R&D budgets, despite the importance of such spending in a market requiring new product launches every six months. The report also anticipates vendors focusing on two types of devices: smartphones for high margins and low-end devices to maintain market share and generate high volumes of sales.

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