RealMoney Silver - Mobile's Barcelona Hangover

Mobile's Barcelona Hangover
By Tero Kuittinen
RealMoney.com Contributor
2/15/2008 11:41 AM EST

The crop of handset launches from the grand mobile telecom conference in Spain this week turned out to be relatively meager. This is particularly problematic for the phone industry, which is betting on major growth in handset upgrade sales in 2008.

Current consensus predictions for this year call for upgrade sales to make up 57%-59% of total mobile phone volume units, 4 to 5 percentage points higher than 2007. This radical shift is necessary, because the sales to new subscribers are likely to be flat year-on-year. The major markets, from North America to Mediterranean countries, have 90%-plus mobile phone market saturation, and China and India clocked such high new subscriber additions in 2007 that substantial year-on-year growth there will be unlikely even though the monthly adds may remain close to peak levels.

The main driver of new upgrade sales in 2008 is obvious -- the new generation of phones equipped with large touch displays. The old high-end display standard is QVGA, which packs 240x320 pixels into the phone screen. The new display era was ushered in by Apple's (AAPL) iPhone last June (320x480 pixels) and LG's KU990 (240x400 pixels), both featuring touch screen functionality. Early media and consumer interest in both models was exceptional, and Samsung soon joined the fray. Its F490 is now perhaps the biggest February handset launch in Europe.

Now both media and consumers are geared for the transition from QVGA to post-QVGA phone display generation, and that could be a big headache for the industry.

Some major vendors may be hoarding a hot summer model that they announce just weeks before launch for strategic reasons. But the way Sony Ericsson and Nokia (NOK) hyped relatively extensive ranges of new phones seems to imply that they do not plan to launch models equipped with large touch screens before next winter season. The Nokia N-96 is going look obsolete the moment Nokia launches an N-series phone with a post-QVGA display technology. So the fact that this N-95 upgrade is scheduled for the third quarter seems to clearly signal the intent to ride the old QVGA pony through 2008.

Apple's announcement a few weeks ago of an iPhone packed with more memory implies that the new 3G version of the iPhone won't arrive until the third quarter at the earliest. Research In Motion (RIMM) has not announced the long-anticipated big display Blackberry, and the buzz in Barcelona was that it won't debut until the third quarter. Motorola (MOT) did not announce any notable new models in Barcelona. Sony Ericsson announced the X1, a dazzling new smartphone with an astonishing VGA display, WiFi and HSDPA support, but that may slip into the fourth quarter. Nokia's biggest announcement was the N-96, an oddly thick and heavy upgrade of the N-95 slated for the third quarter.

In a similar vein, Sony Ericsson's promotional blitz around the X1 seems to indicate that this is the first large-display model from SE. But it is manufactured by HTC, slated vaguely for "second half of 2008 in selected markets" and the current price guesstimate of operator people is 800 euros or up. These are all signs that Sony Ericsson is not ready to integrate large touch screens into its main phone range in 2008. That "second half of the year in selected markets" is a phrase made notorious by Motorola a few years ago. It can be interpreted to imply a shipment of 10,000 units to Zurich and Amsterdam by third week of December.

Of course, LG and Samsung are rolling out new models with big touch screens and seem to be prepping to press the pricing of some of them from the high-end segment into mid-range by the summer, but the combined heft of the Koreans is not massive enough to drive the expected upgrade sales growth in the second and third quarters. For that, the industry now needs consumers to continue buying the aging platforms like Nokia N series, Sony Ericsson Walkman phones and Blackberries without new display tech; the Apple iPhones without 3G or GPS; Motorolas without high-end cameras or displays.

This is a tricky goal when the deafening media coverage around large touch displays has convinced consumers that the new handset generation is just around the corner. Why would you buy a QVGA-display smartphone in June if you know that the X1, with literally four times higher pixel count, is arriving within six months?

This is the psychology that killed the sales of monochrome phones in the winter of 2001; consumers took one look at the Sony Ericsson T-68 color display and decided to postpone their upgrade buying until they can get a Nokia or a Motorola with that kind of screen tech. Back then the idea of display technology supporting 256 colors was a freaky head trip. This time around, the lure of phone displays that can render entire web pages without zooming is the kicker. How this impacts the upgrade market this summer is a fascinating question.