Consumers 'less urgent' in upgrading mobile phones

Summary:Industry watchers say slashed handset subsidies from cautious telcos and weaker spending sentiment has lengthened the upgrade cycle by some three to four months, though phonemakers are hoping for end-of-year improvement from holiday sales.

As the uncertain global economic outlook hits home, this has eroded consumer confidence to the point where people are "less urgent" in replacing their existing mobile handsets with the latest models, particularly in mature markets with high smartphone penetration rates, analysts note.

Anshul Gupta, principal analyst at Gartner, said there has been a "less urgent need" for smartphone users to upgrade due to the uncertain economic climate.

In mature markets, particularly, consumers will have less of an impetus to upgrade their handsets given that operators are cutting back on subsidies to improve their profit margins, he added. Telcos such as Singapore's M1 have recently revealed that their bottomlines were hit by handset subsidy costs .

"Most users usually buy new devices every two years, but we are now observing they are taking about three to four months longer than usual [to do so]," Gupta said.

Agreeing, Ng Kian Teck, lead analyst at SIAS research, pointed out: "Those who want to convert to smartphones would have already done so, while those who have not are sensitive to prices."

Ng noted subsequent smartphone sales would come from youngsters getting their first smartphones, and numbers from this would be slow.

Consumers ZDNet Asia spoke to corroborate the analysts' observations. Malaysia-based sales executive Kelly Sim said there was very little reason for her to get a new smartphone due to the lack of product innovation currently.

"There is very little difference with what I have and the new smartphones on the market. I can save on getting something new and get a better contract with my telco [later on]," she said.

Indonesian marketing executive Meliawati Sudjono pointed out it would take a very spectacular new product for her to consider getting something new as she was content with her current device. One such possible product could be Apple's yet-to-be-unveiled iPhone 5 smartphone depending on its technical specifications and whether it is an improvement over her iPhone 4S, she added.

Last week, Gartner revealed it was likely to slash its 2012 mobile phone sales outlook on the back of sluggish demand reflected in the first half of the year. Gartner noted that overall sales declined 2.3 percent in the second quarter of 2012, reaching a total of 419 million units.

Another research firm, Strategy Analytics, forecasted smartphone shipment growth to slow to 40 percent this year, from 68 percent in 2011, and slide further to 23 percent in 2013.

Holidays to provide short-term relief
In the short term, Gupta expects the third quarter to be as slow or slightly better than the previous quarter, but the improvement will not compensate for the decline in the previous quarters.

The situation is likely to rebound toward the year's end though, as consumer spending is expected to spike during the holiday season. Some consumers may also have been holding back in anticipation of specific products such as the iPhone 5 , the Gartner analyst said.

Phonemakers such as Lenovo have already plans in place to launch their mobile devices during the holiday period and were optimistic of seeing an uptick in the fourth quarter, he added.

Not everyone will be anticipating the increased phone sales then though, as telcos will continue to monitor and manage the rise in handset demand with the increasing costs of phone subsidies. StarHub, for one, said in its August earnings call that it would keep a close eye on the impact of these subsidies from customers taking up new phones.

Topics: Smartphones, Telcos

About

Loves caption contests, leisurely strolls along supermarket aisles and watching How It's Made. Ryan has covered finance, politics, tech and sports for TV, radio and print. He is also co-author of best seller "Profit from the Panic". Ryan is an editor at ZDNet's Asia/Singapore office.

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