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Prices Cut In Falling Cell Phone Market

Posted on: Wednesday, 21 January 2009, 12:36 CST

Cell phone makers have started to slash prices on their phones as demands fall and retailers cut inventories.

Consumer sales for cell phones slumped during the Christmas season and companies like Motorola and Sony Ericsson have reported down sales figures.

Analysts have cut their market estimates, now saying the average forecast will be a 7.9 percent fall in volumes.

Although retailers generally cut prices in January, those cuts have been more aggressive than usual.

"Our researchers have seen significant price cuts in Europe by the major handset vendors as 2009 begins," said Tom Byrd, who leads device-pricing research at CCS Insight.

"This reflects the highly competitive pricing environment we have been predicting for this year," he told Reuters.

In December, Nokia said that it expected to see inventory cuts during the first half of 2009.

"Credit and foreign exchange uncertainty has led to widespread de-stocking in the handset channel, which deepens the downturn," Morgan Stanley said in a research note.

Jari Honko, eQ Bank analyst, said, "After weak Christmas sales, inventory levels are high. I am afraid we could see a price war as inventories will have to be cleaned." He added, "There are two ways to cut inventories, write-downs or dump them on the market."

Writing down assets is not an option given stretched balance sheets, for some firms.  Nokia said limited availability of credit had started to hurt resellers.

Nokia slashed prices for many models last week, with the sharpest cuts being around 10 percent, mostly in the mid-to-higher end phones, according to Finnish retail data.

Also, Europe's largest independent mobile phone retailer, Carphone Warehouse, slashed more than a third off the price of Nokia's first phone model with an unlimited music bundle.

Nokia is due to report their fourth-quarter results on January 22 at 6:00 a.m. EST, with analysts forecasting a steep fall in profits.

In mid-January, Nokia cut prices for its music range models like W890i and W902, by 10 percent or more, but its sales, according to Nokia's chief executive, said this was within the usual range.

"We have not reduced prices sharply, not more aggressively than before," Anders Runevad told Reuters.

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On the Net:

• Motorola
• Sony Ericsson
• CCS Insight
• Morgan Stanley
• Nokia

Source: redOrbit Staff & Wire Reports

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