SAN FRANCISCO Sales of camera phones, which are heavily subsidized by cellular carriers, fueled a 38 percent surge in handset shipments in the second quarter, a market research firm said Friday (July 30).
Also contributing to the 157 million handsets shipped were booming sales in emerging markets, such as Latin America, Eastern Europe and Russia, Strategy Analytics said.
Phones with built-in cameras, however, were a "significant reason why sales are growing," Chris Ambrosio, a wireless analyst with the firm, said.
As a result, Strategy Analytics upped its shipments forecast for the year to 670 million units from 586 million units estimated in January. Handset manufacturers shipped 517 million units in 2003.
The impact camera phones have had on sales would not have been possible without heavy subsidizing by carriers, which are looking to get the advanced devices in the hands of subscribers to sell them more data services in the future. The gadgets are expected to account for 170 million of the total number of handsets shipped this year.
The subsidy strategy, however, could comeback to haunt carriers once more than 70 percent of a region's consumers have camera phones. At that point, the cost of subsidizing the devices will no longer be justified by the corresponding increase in market share.
Customers, however, are likely to be so use to subsidies that they'll refuse to pay full price for expensive devices.
When carriers stopped subsidizing all cellular phones in Europe, for example, sales plummeted from 20 percent to 25 percent almost overnight. In the U.S., the current penetration level for all phones is about 55 percent.
"Once penetration reaches higher levels, carriers won't be able to sustain subsidies," Ambrosio said. "They'll be under pressure to define value (for buying the handsets) other than through subsidies."
Also pointing to the dependence of camera-phone sales on subsidies is the fact that new owners don't use the camera feature for very long, another indicator that they would unlikely pay several hundred dollars retail for the device.
"The first month there'll be a big surge in usage, but after that, it kind of flattens out," Ambrosio said.
Strategy Analytics has found that camera phones usually up the average revenue per user only in the single digits, overall, compared with usage before the subscriber had the phone. Subscribers use the devices more often to send text messages than to send pictures, which is still a difficult process on most phones.
"It's still just a toy," Ambrosio said of camera phones. Consumers, however, may one day buy the devices on their own, if the technology improves and prices drop dramatically.
In its quarterly report, Strategy Analytics found that Nokia Corp., the leading handset maker, held its market share steady at 29 percent by cutting prices. Nokia for several years held market shares of 35 percent and above.
Motorola Inc., the second largest manufacturer, saw its share dip to 15 from 16 percent in the first quarter. No. 3 Samsung Electronics Co. upped its share to 14 from 13 percent.
Siemens AG and Sony Ericsson, a joint venture between Sony Corp. and Telefon AB L.M. Ericsson, tied for fourth with 6.6 percent market share apiece. That number, however, marked a big drop for Siemens, which had an 8.3 percent share in the first quarter.
LG Electronics Inc. was fifth with 6.3 percent of the market.
Strategy Analytics' quarterly numbers were higher than those of rival research firm International Data Corp., which reported a 37 percent increase in shipments from a year ago to 164 million unites. IDC uses a different methodology.