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Credit Crunch To Affect Mobile Phone Makers

September 20, 2008

Analysts say mobile phone makers are reliant on Wall Street and many risk losing thousands of customers and experiencing layoffs in the wake of shocking revelations from the global banking industry this week.

Lehman’s collapse sent shockwaves through the market, and Blackberry-makers Research in Motion (RIM) were not immune. Analysts say they face layoffs of up to 40,000 employees.

“RIM probably looks most exposed to any downside risk in this segment,” said analyst Neil Mawston from research firm Strategy Analytics, adding that also Palm, HTC and HP could feel the pinch.

The global credit crunch combined with weakening demand in the United States and Europe could spell out more trouble for phone makers.
Operators have started to answer the growing problem by shifting their subsidy dollars to more expensive phone models.

“In North America they have been targeting especially higher-data devices,” said Carolina Milanesi, analyst at research firm Gartner.

Global demand for mobile phones is expected to increase by about 10 percent this year, due to the increased demand for affordable phones in markets like India.

At the same time, mature handset markets in the developed world have grown marginally at best. In Western Europe handset sales fell sharply in the first half of 2008, Gartner says.

“However a substantial reallocation is underway in that 45 percent of subsidies in these markets now go towards smartphones, some 20 percentage-points higher than 18 months ago — a trend which we believe will continue,” Credit Suisse said.

Last quarter, RIM reportedly sold 5.6 million Blackberry smartphones. Some forty percent of its new subscribers were from large corporations.

“No matter how much economic challenge there is, how many people do you know that have given up their mobile?” RIM’s co-chief executive Jim Balsille said on Thursday in Mumbai at the launch of the BlackBerry Bold smartphone in India.

“But there’s clearly got to be a point where there is an impact. Macroeconomic factors have gotten all the more turbulent in the last week, and maybe it will come to that tipping point,” he said.

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