Nokia Carves Up More Handset Pie

It's official: A lot of people bought cell phones last year.

The fourth-quarter numbers now confirm what industry watchers have long suspected, 2004 was a banner year for phone sales. About 664.5 million handsets were shipped in 2004, a 29% increase over 2003, according to the market research shop IDC.

While few observers anticipated the blowout numbers that capped off the year, some are starting to brace for a slower-growing 2005. The consensus calls for about 730 million cell phones to be sold next year, a 10% increase.

The record sales growth of 2004 was built on a surge in the normal replacement cycle, as people traded in old models for new color-screen phones that sported cameras, radios and electronic arcade games. Another huge contributor was the spread of wireless service in markets such as China, analysts say.

But sustaining even a 10% growth rate this year could be a stretch. The replacement cycle isn't expected to be as strong, and it's not clear whether third-generation, or 3G, networks can entice people in Europe, Japan and the U.S. to buy expensive phones that use new mobile Internet services. Growth also depends on strong demand for phones in so-called emerging wireless markets such as Russia and India.

One dynamic the industry can't count on this year as much as last year is churn in North America. In the wake of number portability rules that kicked in at the end of 2003, consumers fled low-quality carriers like AT&T Wireless to try other companies.

As for the players in the industry, investors and analysts say there will probably be a continuation of the trends that started toward the end of last year. Specifically, Nokia ( NOK) and Motorola ( MOT) have regained momentum. Meanwhile, outfits such as No. 3 Samsung and No. 5 Siemens ( SI) are believed to be slipping.

The fourth-quarter numbers show an impressive rebound for Nokia, the No. 1 cell-phone maker. Nokia ended the fourth quarter with 34% market share and, thanks to a strong holiday sales season, managed to post a 19% improvement over the year-ago period.

Helsinki Treat
Nokia regains market share
2004 figures. Source: IDC

Motorola also came up big in the fourth quarter, recapturing its No. 2 spot after falling to third behind Korea's Samsung in the third quarter.

On the losing end, Siemens slipped to fifth place behind the other big Korean challenger, LG. Siemens' handset shipments declined 11% from year-ago levels.

One buy-side analyst says he expects 3G will finally materialize in the form of strong handset sales in Europe, and that competing wireless technologies like WiMax will be dead on arrival in 2005 because of standards squabbles.

But the hedge fund analyst cautions that 2005 will get off to a sluggish start in the first quarter and will need strong sales in the remaining three quarters if the industry hopes to hit its 10% growth target.

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