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Developing markets fuel cell phone sales growth

A recent Gartner report shows that sales in emerging markets helped boost overall mobile handset sales 13.6 percent in the first quarter of 2008.

Demand in emerging markets fueled worldwide growth in the cell phone market for the first quarter of 2008, according to a new report from Gartner.

The firm published a report on Wednesday that said worldwide sales had increased by 13.6 percent in the first quarter compared to the first quarter of 2007. Much of this growth came from developing markets.

Sales in Asia jumped 26.6 percent from the same quarter in 2007 driven by demand in India and South Korea, as consumers upgraded their handsets before extending carrier contracts. Sales also increased by 25.8 percent in Eastern Europe, the Middle East, and Africa. And the biggest growth was seen in Latin America where sales increased 28.4 percent compared with the first quarter of 2007.

Meanwhile sales in Western Europe dropped about 16.4 percent, the first decline in sales in this region since 2001 when Gartner first began tracking the sector. Sales in Japan also dropped about 10 percent.

"While sales in emerging markets continued to be driven by strong net new subscribers' growth, mature markets felt the pressure of an uncertain economic environment," Carolina Milanesi, research director for mobile devices at Gartner, said in a statement.

In North America, Gartner found that sales increased only 2.4 percent compared to the same quarter a year ago. Gartner's numbers differ from those of another research firm NPD Group, which found that sales of handsets in the U.S. actually declined 22 percent compared to the first quarter of 2007.

Gartner's analysts said they believe that the mobile handset industry will continue to grow about 10 percent to 15 percent in 2008, driven mostly by emerging markets. But the firm also warns that the current economic slowdown could further slow growth in mature markets, while higher food prices could lead to longer replacement cycles in emerging markets.

The sales cycle in the U.S. has already started to lengthen. A recent customer survey by J.D. Power and Associates found that consumers in the U.S. are holding onto their phones, on average, a month longer than they had previously. So instead of replacing a phone every 16.6 months, as Americans had done in 2006, they are replacing phones, on average, every 17.7 months.

In addition to economic woes, the market will likely slow a bit due to market penetration. With nearly 3 billion cell phones in the market already and penetration over 80 percent in places like the U.S., it makes sense that sales in these regions would slow.

The good news is that consumers in developed markets are starting to buy more smartphones, which typically cost more and offer better profit margins for manufacturers. These handsets typically sell for between $200 and $600, compared to more basic phones which sell for about $60.

The challenge for handset manufacturers going forward will be striking a balance between offering more expensive, feature-rich devices for developed markets like Europe, Japan, and the U.S. and also offering lower-cost, basic phones for the emerging markets, such as India, China, Eastern Europe, the Middle East and Latin America.