Cell Phone Sector On Hold

One of tech's high-revving growth engines -- mobile phone sales -- will slip into low gear this year.

Less than three weeks into 2008, two of the top phone makers have lowered growth forecasts for the handset industry.

No. 4 player Sony Ericsson -- co-owned by Sony (SNE Quote - Cramer on SNE - Stock Picks) and Ericsson (ERIC Quote - Cramer on ERIC - Stock Picks) -- said Wednesday that it sees 10% market growth in 2008, down from the 15% rate it had exiting 2007.

And Monday, No. 2 phone shop Samsung lowered its 2008 industry growth estimate to 9% from a 14% pace it predicted for 2007.

Phone makers have usually started with a conservative forecast and raised the target over the course of recent years. The steep downward estimates suggest more of a broad and steady slowdown.

The growth rate peaked in 2004 as stylish color screens and built-in cameras caused people to more quickly replace old models with cooler phones. And the rapid expansion in developing markets like China and India helped add more fuel to the breakneck market growth.

But that 2004 growth rate, which JPMorgan pegged at 31%, is expected to drop by half this year to 15%, analysts say.

A Cool Trend Mobile phone industry growth hits the skids

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Source: JPMorgan

Now, just as annual mobile phone sales cross the crucial 1 billion unit mark in 2007, the industry's robust expansion is starting to bump into limits. So-called penetration rates -- the number of cell phone owners compared with non-owners -- is hitting capacity in many markets such as the U.S. and Europe.

And as penetration rises around the world, the red-hot growth in new markets will also cool.

These trends, however, are part of the predictable cycles of technology adoption and replacement. Although industry observers are aware that the wireless glory days of roaring growth are behind, they aren't exactly alarmed by the slowdown.

Nothing is recession-proof, say analysts, and unlike cars and homes, cell phones are relatively cheap. Plus, they eventually break, making for a steady replacement demand.

Next week, Motorola (MOT Quote - Cramer on MOT - Stock Picks) and Nokia (NOK Quote - Cramer on NOK - Stock Picks) are scheduled to present fourth-quarter earnings and an outlook for the year ahead.

Nokia's Rise and Motorola's Fall Mobile Phone Market Share Forecast

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*Gartner Group **Analysts' forecasts

Motorola is expected to show improved mobile phone sales, but its share of the market is likely to keep on slipping.

And on Thursday, Nokia is expected to deliver solid results, though its cut of the market will probably remain the same at around 38%.