Europe’s smartphone growth at risk

Although smartphone sales in Europe are still growing, market participants must act now to minimise the recession’s impact on smartphone sales and position smartphones for post recession growth, according to a new report from Pyramid Research, the telecom research arm of the Light Reading Communications Network.

While Pyramid Research expects total handset sales to decline 21% in Europe in 2009, smartphones sales, driven mostly by market developments in Western Europe, will continue to grow robustly, at about 22% year on year, noted Stela Bokun, analyst at Pyramid Research and author of the report.

In CEE, however, Pyramid believes smartphone sales will fall 8% in 2009. “Even when the region’s economy is doing well, device vendors and operators typically report much lower smartphone handset sales in CEE countries,” Bokun said. “Recently this situation has worsened significantly; many CEE countries are seeing staggering GDP declines, significant currency devaluations and skyrocketing unemployment.”

Smartphone market players should implement strategies that are more likely to maintain sales volume during the downturn and expand business once the economy improves. “If smartphones do not get cheaper, and if buyers continue to bear the full burden of currency fluctuations, smartphone uptake will suffer in a prolonged recession,” Bokun said.

While some Western Europe countries, such as Spain, have been severely affected by the recession, price adjustments are particularly needed in response to economic conditions in CEE markets. “Some vendors, such as LG and Samsung, have already addressed this situation by offering more affordable smartphones in some CEE markets,” she added.

Also, in the more developed Western European markets, smartphone applications will have to be compelling for smartphone uptake to remain unaffected by the deteriorating economy. Furthermore, if demand for advanced data services falls – and Pyramid Research does expect that the growth in revenue from data services will slow in 2009 – the need for smartphones is likely also to decline.

“By focusing more on retaining their most lucrative customers – smartphone users – and encouraging these customers to use their mobile data networks, operators will keep their margins comparatively stable in the current economy and increase them once the economy improves,” Bokun explained. “In other words, today’s short term survival strategy will turn into a winner in the medium term.”

The report examines the impact that the economic downturn will have on European smartphone sales in the short and medium term, offering guidance to smartphone market participants on how to mitigate the effects of the economic slump and prepare for post recession growth in Europe.