[business daily] A challenging year lies ahead for mobile phone manufacturers as sales of grey market phones continue to increase, new research shows.
An acceleration in the grey market will drive worldwide mobile device sales to end users to 1.214 billion units, according to the latest outlook by research firm Gartner.
In September, Gartner had forecast sales to decline 3.7 per cent in 2009 but the firm now predicts sales in 2010 will show a 9 per cent increase from 2009.
Most new sales in the coming year will be in grey market models, the term used to describe the growing number of Chinese manufactured gadgets and phones brought into the country through unofficial channels.
"All manufacturers will have to compete with grey-market players as they expand into emerging markets, bringing a lower weighted average selling price (ASP). The grey market will affect Nokia's market share in 2010 the most," said Carolina Milanesi, research director at Gartner.
Local players, who were just relishing the gains made from a cut in value added tax charged on handsets implemented after the budget, say grey market phones continue to affect their sales.
The VAT reduction meant volumes of their phones imported from places like Dubai shrunk as there was no longer a vast price differences between local and foreign phone prices.
"The VAT removal has been beneficial as it means we can now compete with grey market on the pricing front as well as add value. Consumers can now get more value in the form of warranties and customer service for the same price," said Dorothy Ooko, Communications Manager at Nokia East Africa.
But the effects are yet to trickle down to consumer consciousness, as grey sales continue to top those made through official channels.
"Despite our market share rising over the last few months, we continue to battle grey sales. This is still a big challenge for us," said Patricia King'ori, GSM General Manager at Samsung East Africa.
According to data collected by Business Daily, grey market phones still command the lion's share of the market, with over 40 per cent of phones in the market coming from off-trade imports and Chinese manufacturers like Huawei and ZTE.
The remainder of the market is divided amongst Nokia, Samsung and LG, with Nokia claiming the largest market share.
"Although the grey market or 'white label' is not a new phenomenon and has been generated by Chinese device manufacturers who do not have a licence to sell and manufacture devices without a valid international mobile equipment identity (IMEI), today grey-market sales are no longer limited to China," said Ms Milanesi.
In 2009, overall market economic conditions impacted disposable income and extended replacement cycles in mature markets from 12 to 18 months.
Due to the harsher economic climate, more people are hanging onto their phones for longer, but Gartner expects replacement cycles globally to return to normal within two years, with the introduction of more aggressively priced phones.
Gartner also expects second-hand sales in emerging markets and SIM - only sales globally to stabilise in 2010 and to start decreasing from 2011 as consumers feel less macro-economic pressure.
Fewer sales of smart phones - currently the fastest growing segment - will mean ASPs for enhanced phones and smartphones to decline by 3 per cent in 2010.
Smart phone volumes represent 14 per cent of total mobile devices sales in 2009, growing by 23.6 per cent from 2008 and to 38 per cent by 2013.
"Despite a projected return to growth in 2010, the times of 20 per cent growth are certainly over as mature markets are saturated and most growth will come from emerging markets," said Ms Milanesi.
"Pressure will remain for manufacturers to sustain and grow margins as ASP continues to decline. Software, services and content will be much bigger drivers than hardware, pushing traditional mobile phone vendors to reinvent themselves to remain at the top of their game."
Kenya:Grey Market Phone Sales to Increase Next Year