Converged device shipments fail to offset record European handheld volume declines in 2Q06, says IDC

LONDON – August 2, 2006 – According to the latest market data from IDC, the Western European mobile device market (including standalone handhelds and converged devices) suffered a disappointing performance in the second quarter of 2006 as the total market declined by 3% year on year to total 3.3 million units. The handheld market suffered further intensification of the negative growth exhibited since 4Q05 as shipments declined by 49% year on year, while comparatively insubstantial growth for the converged device segment of just 10% year on year meant demand for devices with combined voice and data functionality failed to offset the negative growth of the handheld segment.

"Although converged devices continue to exhibit healthy growth at the worldwide level, growth of 23% for Western Europe in 1H06 is indicative of a leading market that is falling short of expectations this year. Delayed product launches and portfolio transitioning for key vendors such as Motorola and Sony Ericsson has been a leading cause, further exacerbated by heightened competition from the feature phone segment in 1H06 as carefully positioned multimedia solutions served to counter the advance of converged devices into the consumer space," said Andrew Brown, program manager, European Mobile Devices and Computing.

Consequently, 2Q06 saw the onus on Nokia to drive market growth continue to increase, with shipments for the Finnish vendor growing by 13% year on year to account for 74% of the converged device market compared to 72% in 2Q05.

Canadian vendor RIM also maintained steady growth year on year of 34%, consolidating second position in the total mobile devices market, while the absence of any significant traction in 1H06 for alternative Symbian licensees to Nokia meant the market-leading operating system suffered flat growth of 2% year on year. In contrast, substantial growth of 210% for Qtek contributed to converged device growth of 84% for the rival Windows Mobile platform, as Microsoft's rollout of MSFP and modest growth in OEM/ODM support served to increase its share of the converged device OS landscape to 17%.

"Mobile device market performance in 2Q06 is indicative of a market in the midst of a significant transition. Although handheld vendors are steadily migrating product lines towards a higher mix of converged devices, the complexities and challenges inherent in executing such a shift in strategy at a time when the handheld market is suffering sequential declines means converged devices are struggling to compensate for shrinking handheld volumes and margins," said Geoff Blaber, senior research analyst, European Mobile Devices. "Microsoft is proving to be the biggest victim of this scenario, with comprehensive growth of 84% for Windows Mobile converged devices failing to offset substantial negative handheld growth, resulting in an overall decline of 7% in Windows Mobile device shipments from 2Q05."

All handheld vendors, with the exception of Fujitsu Siemens, suffered double-digit negative growth in 2Q06 as the handheld market declined beyond expectations at -49% year on year.

"Large volumes of channel inventory resulting from comparatively high sell and low demand in recent quarters, combined with the intensification of competition from competitively priced dedicated GPS systems, fueled negative growth during the quarter, heightening IDC's expectation of vendor market withdrawals during 2006 in response to low margins and shrinking volumes," said Jean-Philippe Bouchard, senior research analyst, European Mobile Devices.

Vendor Highlights

— Nokia – Nokia extended its lead of the European mobile device market in 2Q06 as year-on-year growth of 13% drove shipments of 2.17 million units and market share of 66% compared to 57% in the corresponding quarter of 2005. The vendor's extensive commitment to the S60 platform to deliver a broad portfolio of business- and multimedia-centric devices is serving to substantially reduce development times and costs. The N91, 3250, and N70 witnessed strong demand in 2Q06 alongside business productivity devices, the E60 and E61, which enjoyed their first full quarter of availability.

— RIM – The Canadian vendor shipped just under 195,000 units during 2Q06 representing year-on-year growth of 34%. The widespread introduction of the EDGE-capable 8700 and 7130 devices featuring Intel processors served to drive demand in tandem with the BES Express initiative designed to respond to growing competition in the SMB space. Furthermore, the launch of its hosted BES solution announced in early July reinforces RIM's intentions to extend its influence beyond the high-end, enterprise segment.

— Qtek – Qtek continued to drive Windows Mobile device volumes in 2Q06 as shipments reached almost 165,000 units, representing substantial year-on-year growth of 210%. With HTC announcing the launch of its own European brand in June by migrating the Qtek brand, the addition of deeper end-user and marketing support combined with Qtek's growing channel presence promises to drive further growth.

— HP – The U.S. vendor suffered another quarter of negative volume growth in 2Q06 as shipments declined by 25% year on year to reach a total of 122,310 units. The substantial slump in demand for handheld-based GPS solutions caused GPS attachment rates to fall to around 10%, while market anticipation for the forthcoming rollout of the hw6900 scheduled for 3Q06 contributed to muted demand for its hw6500 converged device.

— Palm – Palm's European market performance reached a record low in 2Q06 as total shipments failed to exceed 90,000 units and volumes declined by 48% year on year. Indicative of a strategic emphasis on North America in 1H06, the requirement to terminate European shipments of the Treo 650 and LifeDrive to comply with the RoHS directive will further inhibit performance prior to the launch of the Treo 750v with Vodafone in 2H06.

Segmentation

— Handhelds

These devices bring a wide range of mobile functionality to their users.

Either pen- or keypad-centric, they are designed to access and manage data. They may include wireless capabilities to enable Internet access and text communication, but not telephony. This category includes pen-based and keypad-based handhelds. Handheld devices with telephony capabilities are tracked within the converged handheld device category.

— Converged Devices

These mobile devices are either voice- or data-centric and are capable of synchronizing personal information and/or email with server, desktop, or laptop computers. Positioned to answer the "multiple device question," and replacing the need to carry a mobile phone and a pen-based handheld or a mobile phone and a pager, for example, these devices may also include an expanding list of features, such as multimedia or email. Such devices match wireless telephony capability to evolved operating systems or application environments, such as the Palm OS, Windows Mobile 5.0, and the Symbian platform, and include the ability to download data to local storage, run applications, and store user data beyond their required PIM capabilities.

IDC's European Mobile Devices Tracker

IDC's European Mobile Devices Tracker provides quantitative analysis of the European mobile device market, incorporating handheld and converged devices, on a quarterly basis. Analysis includes historic quarterly unit shipments and values from 1Q00 and subsequent quarters by vendor, form factor, device type, country, operating system, distribution channel, and end-user segment, as well as short-range forecasts. For more information please contact Andrew Brown on +44 (0) 208 987 7209 or abrown@idc.com.

About IDC

IDC is the premier global market intelligence and advisory firm in the information technology and telecommunications industries. We analyze and predict technology trends so that our clients can make strategic, fact-based decisions on IT purchases and business strategy. Over 700 IDC analysts in 50 countries provide local expertise and insights on technology markets. Business executives and IT managers have relied for 40 years on our advice to make decisions that contribute to the success of their organizations.

IDC is a division of IDG, the world's leading technology media, research, and events company. Additional information can be found at www.idc.com

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