U.S. mobile-phone sales take a hit

Market researchers at NPD Group report a year-over-year sales decline of 13 percent in the second quarter. The silver lining: higher sales of more expensive, feature-rich phones.

Marguerite Reardon Former senior reporter
Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.
Marguerite Reardon
3 min read

Mobile-phone makers are already feeling the pinch in the U.S. market of an economic slowdown amid tough competition.

U.S. mobile-handset sales were down 13 percent in the second quarter compared to the same quarter in 2007, NPD Group said in a study released Tuesday.

In total, mobile manufacturers sold 28 million units in the U.S. in the second quarter of 2008, with sales of roughly $2.4 billion, marking a decline of about 2 percent compared to last year's second quarter, NPD said.

Samsung warned investors this summer, following the close of the second quarter, that it sees challenges ahead as the world faces an economic slowdown and competition increases among manufacturers. Manufacturers such as Nokia, on the other hand, are selling high volumes of cell phones overseas, particularly in developing markets. In fact, ABI Research recently predicted that global mobile-handset sales would grow 13 percent in 2008.

Despite the good news on the global front, it's not shocking that sales in the U.S. are down. After all, more than 80 percent of Americans already own a phone, and many people are bound to two-year contracts that make it more expensive to upgrade to new phones before their contracts expire.

Still, the news of the maturing market is somewhat troubling for handset makers that depend on sales in the United States, such as Motorola.

Motorola managed to report a profit for the second quarter, mostly due to cost cutting. But its handset business, which is currently being spun out from the rest of the company, continued to drag on its financials.

In spite of these troubles, Motorola managed to just barely maintain its lead in the U.S. market during the first quarter, according to NPD. But its U.S. market share fell 6 percentage points from the first quarter and 11 percentage points compared to the same quarter a year ago.

Meanwhile, competitors LG, Research In Motion, and Samsung all gained market share.

"Quarterly unit sales of handsets fell to their lowest level since NPD began tracking the category in 2005," Ross Rubin, director of industry analysis for NPD, said in a statement. "Even so, most major manufacturers picked up market share that was lost by Motorola."

Nokia, which sells the most cell phones throughout the world, held on to a distant fourth place in the U.S. with a market share of only 9 percent.

If there is a silver lining in the U.S. handset story, it's that Americans are buying more feature-rich phones that have a higher price tag. The average selling price of phones in the U.S. reached $84, an increase of 14 percent, compared to the same quarter a year ago, NPD said. However, prices fell about 4 percent from the first quarter of 2008.

Demand for more feature-rich phones in the market is good news not only for phone manufactures, but also for wireless operators, which want to sell more data services, like text messaging and Web surfing.

The biggest growth in handsets came from devices with QWERTY keyboards. About 28 percent of all phones sold in the second quarter had this feature, compared to just 12 percent the year prior.

Smartphone sales increased to 19 percent of all mobile-phone sales in the second quarter. This was a 9 percent increase from the same period a year ago. NPD also noted that 81 percent of all phones in the second quarter were Bluetooth-enabled, compared to 69 percent last year. And 65 percent of phones sold during the quarter were music-enabled, compared to only 45 percent last year.