With Q3 results already announced by Sony Ericsson and Samsung, we’ve been busy working on some initial analysis in prepation for the next edition of the quarterly PMN Handset Industry Insight service (due for publication later this month).
The picture emerging so far is one of a strengthening situation at Samsung, which shipped a record 42.6m handsets in Q3, and saw margins jump 48% with a QoQ (quarter-on-quarter) rise of 8.3% to 12.3%.
We expect the growth in unit shipments to confirm Samsung’s position as the world’s second largest manufacturer by volume, which it first claimed in Q2 07 on the back of rapidly declining sales at Motorola (which slipped to third place). There are no signs that Motorola will substantially improve unit shipment numbers in Q3.
Samsung also saw its first QoQ rise in average selling prices for more than 18 months, recording an 8.6% rise from the Q2 ASP. However, ASP fell by 15.3% when compared on a YoY (year-on-year) basis, in-line with the wider trend in the mobile business (ASPs fells by 16.2% across the industry in Q2 2007).
Samsung’s strong results are due primarily to a much improved mid- and high-end portfolio, based around its ‘Ultra’ brand. The attractive styling, competitive pricing and music capabilities of these handsets have been well received globally and are attracting considerable interest from operator buyers.
We also note Samsung’s growing list of handset development partnerships with high profile consumer and fashion brands, including Armani, Ted Baker and Bang & Olufsen. We believe these will support Samsung’s re-emergence in the premium space, where it has taken a back seat in recent months amid competition from Apple in the US, Nokia’s N-Series, LG’s premium products (including the Prada handset) and some high-end Sony Ericsson Walkman phones.
The story at Sony Ericsson is not quite so robust. It continued to see above average YoY growth in unit shipments (up 30.8% at 25.9m), but QoQ growth in unit shipments slowed to 4%. This compares with an average QoQ growth rate of 15.2% for the previous 12 months.
We attribute this slackening momentum in unit shipment growth to a transition period while Sony Ericsson waits for the impact of new handsets such as P1i, K850i and W960i to trickle through. The company’s expanding portfolio of mid- and low-end handsets (with more yet to come from its partnership with Sagem) is also expected to re-ignite growth in Q4 07 and Q1 08.
Sony Ericsson’s average selling price dropped 22.5% YoY in Euro terms, declining from EUR 147 in Q3 06 to EUR 120 in Q3 07. There was also a 4% QoQ drop in Euro terms from Q2 07 to Q3 07. However, when adjusted for global comparison in our dollar weighted tracking metrics, the weakness of US currency softened this blow to a YoY decline of 12.2% YoY and QoQ fall of 3.1%.
The Swedish / Japanese joint venture is finally seeing a slowdown in the outperformance which has distanced it from its larger rivals for the past several quarters. The early technology lead it took in high specification camera and music phones has been clawed back by Samsung and Nokia.
However, unlike Motorola’s fleeting success with RAZR – which was built solely on eye-catching industrial design – we believe Sony Ericsson’s has laid longer-term foundations of good user experience and brand value. This should enable it to stabilise its ASP decline and continue to grow market share in the next six months.
We also note the change in senior management, with Miles Flint due to step down in November 2007 after several highly successful years as President. He will be replaced by Hideki ‘Dick’ Komiyama, currently Chairman of Sony Electronics in the US and Executive Vice President of Electronics Marketing and Sales Strategies at Sony in Japan. We will watch will interest to see whether this will prompt a new generation of products at Sony Ericsson and expect to see deeper integration with Sony’s gaming and video product lines.
LG is due to report its results tomorrow, with Nokia on Thursday and Motorola waiting until the following week.
Full analysis will be provided in the next quarterly edition of PMN’s Handset Industry Insight service, which tracks the performance of the 5 largest manufacturers (Nokia, Samsung, Motorola, Sony Ericsson and LG) across a wide range of data points. The service features PMN’s unique qualitative analysis to provide insightful commentary into what’s driving the numbers, explaining current and historical data for unit shipments, market share, average selling prices, revenues, profits and margins dating back to Q1 2006.
Annual subscriptions are priced at GBP 795 (+ VAT @ 17.5% where applicable) or single issues can be purchased for GBP 395 (+ VAT @ 17.5% where applicable). See www.pmn.co.uk/insight.shtml for further information and to purchase on-line.