Handheld Shipments Plummet in Europe as S60 Smart Phones Surge Beyond Two Million Units in 4Q05, Says IDC

LONDON – FEBRUARY 1, 2006 – According to the latest market data released by IDC, the Western European mobile device market (including standalone handhelds and converged devices) grew by 26% year on year and 32% sequentially in the final quarter of 2005. Total shipments reached 4.5 million units in 4Q05 as the relentless growth of Symbian S60 throughout 2005 was maintained to drive total mobile device shipments of 13.9 million units for the year, compared to 8.9 million units in 2004, representing year-on-year growth of 56%.

However, while record S60 shipments contributed significantly towards market performance in 4Q05, final quarter growth represented the most disappointing year-on-year volume increases of all quarters in 2005 for both converged and handheld device categories.

"With intense competition from rival consumer electronics over the festive period contributing to an abrupt halt in the growth witnessed by the handheld category in 2005, growth was highly reliant on a converged device segment in 4Q05 that itself witnessed disappointing growth outside the consumer-centric Symbian S60 platform," said Jean-Philippe Bouchard, senior research analyst, IDC European Mobile Devices.

Most significantly, despite growing 31% sequentially the standalone handheld segment suffered negative year-on-year growth of -17% as shipments reached just 839,000 units compared to volumes in excess of a million in the corresponding quarter of 2004.

"Disappointing growth for handhelds in the high volume final quarter has reinforced the belief that GPS bundling in isolation could not maintain positive growth indefinitely despite portfolio refreshes and aggressive price cuts by leading vendors such as HP and Palm," said Geoff Blaber, research analyst, European Mobile Devices. "The multi-application superiority of converged devices and heavily subsidized price points, combined with aggressively-priced dedicated GPS systems, triggered the decline in 4Q, presenting a bleak outlook for the market in 2006."

With the exception of Acer and Medion, all top 5 handheld vendors suffered negative growth in 4Q05. However, substantial price cuts by HP and Palm to counter the competitive threat from Acer and other low cost Windows Mobile vendors fueled rejuvenation in market share from previous quarters. Palm led the market for the first time since 1Q04, with 23%, and was followed by HP, proving that despite a dominant European preference for Microsoft's OS, demand remains for Palm OS devices positioned in specific segments at competitive price points.

In contrast to handhelds, converged devices exhibited market growth of 42%, driving shipments of 3.6 million units to push total shipments for 2005 to just under 11 million units, representing year-on-year growth of 80%.

However, growth fell below expectations in the final quarter as major vendors such as Motorola and Sony Ericsson saw a substantial slowdown in shipments as devices such as the MPx220, A1000, and P910i reached the end of their life cycles and the channel was cleared for new launches in the opening quarter of 2006. As a consequence, the market continued to be dominated by Nokia S60 shipments as the launch of the N70 further invigorated demand, assisted by extensive 3G service/content promotion by operators in anticipation of the Christmas period. The Finnish vendor consolidated a 76% market share, followed by RIM, which maintained momentum to ship 215,000 units. The prolonged absence of push email capability for Windows Mobile 5.0 combined with the launch of RIM's EDGE-capable 8700 device presents a positive outlook for the Canadian vendor in 2006.

"The release of Windows Mobile 5.0 and the influx of new devices that is fueling promises to invigorate the market in 2006, particularly within the enterprise space," said Andrew Brown, program manager, European Mobile Devices and Computing. "However, Symbian's positioning as an OS and flexibility to enable low-cost implementation in multimedia or enterprise-centric devices means Microsoft faces a significant challenge to rival the dominance that Symbian has established to date."

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Vendor Highlights

— Nokia – The Finnish vendor enjoyed an emphatic end to 2005 as growth of 87% and shipments of 2.8 million in 4Q secured a market share of 62%, an increase from 41% in 4Q04. Total year growth of 111% illustrates the traction its S60 platform gained throughout 2005 as devices such as the 6630, 6680, and N70 successfully executed its strategy of penetrating the consumer market with a feature rich, multimedia platform, while Series 80 made steady progress in the enterprise segment with the 9300 and 9500 communicators.

— HP – Negative growth of -25% in 4Q and a decline in total mobile device market share to 6% from 10% in 4Q04 concludes a turbulent year for HP's handheld business, which suffered total growth of -9% in 2005 as shipments struggled to exceed 880,000 units. However, total shipments of 175,000 units in the final two quarters suggest the messenger is gaining traction; the success of its evolving converged device portfolio is critical to growth in 2006.

— RIM – 4Q04 represented another quarter of solid growth as a year-on-year shipment increase of 17% drove shipments of 215,000 units, constituting another record quarter for the vendor while total shipments in 2005 reached 705,040 units, representing substantial growth of 77%. The widespread launch of the 8700 in early 2006 combined with the prolonged absence of Microsoft's entry to the push email space presents a positive outlook for 2006.

— Palm – Although Palm registered negative growth of -23% in 4Q05, a portfolio refresh and a substantial reduction of ASPs across its handheld product line served to secure first position in the standalone handheld space for the first time since 1Q04. However, disappointing Treo 650 shipments and full year negative growth of -20% reveal the extent of the challenge for Palm in Europe, particularly with Windows Mobile 5.0 Treo 700w not due to ship until 2H06.

— Acer – While Acer was unable to maintain the phenomenal sequential growth witnessed earlier in the year, year-on-year growth in 4Q05 still exceeded 100%. Total handheld shipments of 555,665 units for 2005 represented enormous growth from 2004 of 376%, to consolidate fifth position in the total mobile devices market. However, with margins continuing to shrink in the standalone handheld space and competition in the GPS space intensifying, Acer faces a tough competitive environment in 2006.

Segmentation Definitions

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 solve 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, Microsoft Pocket PC Phone Edition 2002, Microsoft Windows Smartphone, 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 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.

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