Handsets Accelerating in Emerging Markets
One area that has been of particular concern has been cellular. Despite very strong December quarter results from industry leader Nokia Corp. (NYSE: NOK) and solid demand from three of the remaining four leaders (Motorola Inc. (NYSE: MOT) being the exception), worries reign supreme in the eyes of investors and analysts. Granted, questions were raised about overall demand after softer than expected unit sales from Samsung Corp. and Sony Ericsson Mobile Communications . Additionally, digital baseband supplier MediaTek Inc. (Taiwan: 2454) cut back silicon orders significantly for the first quarter of 2008, and RF component supplier RF Micro Devices Inc. (Nasdaq: RFMD) pre-announced negatively, citing, in part, demand in Asia.
As a result of this anecdotal information, questions have arisen about overall demand in this billion-unit, worldwide market and, in particular, the growth engines -- the emerging markets. There have been no better examples of emerging market growth than China and India, which have become the poster children for wireless growth. These two countries are the largest and fastest growing cellular markets in the world. In 2006, they added 131 million net new subscribers. That number increased by 29 percent in 2007 with more than 170 million net new subscribers.
Both countries are beginning to see the penetration move out from the population centers into more rural areas as the technology and cost structure allows. Obviously, this process is not limited to China and India, and the experience is being duplicated in Indonesia, Malaysia, Africa, and numerous other emerging regions.
But are we seeing a slowdown in demand from the emerging markets as some of the anecdotal evidence suggested? The quick answer is no.
Last weekend the Telecom Regulatory Authority of India (TRAI) published its subscriber growth data for January. Adding that to the subscriber statistics from China Mobile Communications Corp. and China Unicom Ltd. (NYSE: CHU) creates a fairly accurate picture of what’s transpiring in these markets.
As you can see in the graphs below, demand isn’t stagnating but accelerating. The two countries combined for 17.2 million new subscribers in the month of January. India added 8.8 million (a record) and China added 8.5 million (also a record). What may be more important to the industry is the fact that the new subscriber growth rate at a combined level remains very strong at 32 percent year-to-year after a decline into the mid-high 20 percent range in the latter stages of 2007. China’s growth has moved back to the mid-30 percent range (+36 percent in January). India is back at +29 percent year-to-year after dipping to only 20 percent last October.
But the big question on everyone’s mind is: Will it continue? To that I think the answer is yes. What we’re seeing in emerging markets is secular growth. To Page 2