Device vendors must switch focus to software to survive

Global revenues from mobile phone sales are expected to increase 6.8 per cent CAGR (compound annual growth rate) between 2007 and 2013, topping $200bn by the end of 2013.

According to the latest figures released by industry analyst and telecoms.com parent Informa Telecoms & Media, emerging markets, including Brazil, Russia, India, China (BRIC) and Africa, will make up the majority of the global handset market value, with 60 per cent share in 2013.

In developed markets, growth is forecast to slow significantly and will not exceed 2 per cent CAGR and could even turn negative after 2009 if the downturn continues.

With revenue growth from mobile phone sales expected to hit just 2 per cent CAGR in Western Europe, 1 per cent in North America, and less than 0.5 per cent in Japan between 2010 and 2013, smartphones are predicted to represent the major growth area. Informa reckons revenues from smartphone sales will represent more than 55 per cent of total handset market value in North America, Western Europe, and Japan, but this phenomenon will only slightly offset the sharp decline of non-smartphone market value.

Furthermore, the ongoing price war between OEM’s will only intensify with new entrants such as Apple and Google increasing their pressure on competitors to reduce prices on smartphones. While commodity chipsets, off the shelf platforms and the use of open source licensing models will mean OEMs will find it hard to maintain feature phone and smartphone margins in the future.

“Looking forward, it is becoming clear that, in these regions, handset vendors can no longer rely on mobile phone sales to sustain growth. They will have to look at other opportunities, for example getting involved in content creation and service offering”, said Malik Saadi, principal analyst at Informa. This trend is already being exploited by the likes of Nokia, Apple, and Sony Ericsson, which are seeking to create ecosystems linking their devices to services they offer.

With the value of the global smartphone market set to grow from almost $39bn in 2007 to more than $95bn or 47 per cent of the total handset market value in 2013, a number of vendors are increasing their involvement in open mobile terminal software – a core foundation in the development of smartphones.

Saadi notes that a number of mobile open source foundations have been created within the last two years including the Symbian Foundation, the Open Handset Alliance (OHA), and the Linux in Mobile foundation (LiMo). Virtually all OEMs and the leading operators are actively working within these organisations and preparing themselves to compete strongly in this market segment.

“This development clearly indicates the industry is entering a new era where product differentiation will increasingly shift from hardware to software. Vendors who have prepared themselves for this radical change will find themselves in a better position than those who continue to differentiate their products on the basis of hardware,” said Saadi.