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Cell phone price tags headed south

A Motorola executive expects the average selling price to drop 5 percent in 2003, not good for an industry coming off a surprisingly good year.

In a second dose of bad news for cell phone makers Tuesday, Motorola said it expects the average price of a cell phone to drop about 5 percent in 2003.

While that's good news for consumers, it makes for uneasy handset makers and wireless carriers worldwide.

Motorola Vice President Rob Shaddock told a gathering of financial analysts at a Deutsche Bank technology conference in Scottsdale, Ariz., that cell phone inventories worldwide are higher than normal. One area of glut is

"It's no secret that the situation in China is more competitive than people thought," Shaddock told the analysts Tuesday.

The announcement followed a warning from Nokia that sales and earnings would be weaker in the first quarter because of slow demand for networking equipment. Nokia is now forecasting quarterly earning at 17 to 19 cents per share, compared with its previous outlook of 17 to 21 cents per share.

This is not what wireless executives wanted to hear so early in year. The wireless industry surprised even itself with its numbers for 2002, which was supposed to be the second straight year of declining handset sales. Instead, sales of handsets worldwide rose by about 6 percent, and the fortunes of many of the world's major wireless carriers increased as well.

But 2003 so far isn't shaping up to be another banner year, said Keith Waryas, a wireless analyst with IDC. He said, in fact, that this will be the first time in memory that handset sales don't increase by double-digit percentages.

One of the main reasons for this is a lack of new customers to pursue. In the United States, for instance, 51 percent of adults own a cell phone. The percentage is even higher in Taiwan, where there are more cell phones sold each year than there are residents, meaning some people own two cell phones, Shaddock said.

"I don't think we'll be seeing the double-digit growth we're used to," Waryas said.