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Motorla has gained market share with GSMA contracts, but it has hurt margins. The global market for sub-USD 20 ultra low cost handsets (UCLH) will be over 330 million units in 2011. A new study from ABI Research finds that over 50 percent of these handsets will be shipped in the emerging markets of Asia Pacific and the remainder in markets of Africa, Middle East, Latin America, and Eastern Europe.
“The growing demand for ultra low cost handsets has provided mobile operators and handset vendors with a quick route to a greater share of the emerging markets. The downside is that they are manufacturing and shipping a greater proportion of low-cost handsets, which can adversely affect their profits,” said research analyst Shailendra Pandey.
Nokia’s profits in 3Q06 were down compared to the same quarter the previous year, because a greater portion of its sales came from low-cost handsets. The same happened to Motorola in 4Q06.
Mobile operators will also see declining ARPUs because ultra low cost handset users are mostly from the low-income communities in the emerging markets. Their monthly spending will usually range from USD 2 to USD 5. Nevertheless, addressing the ULCH market is important for handset vendors and mobile operators to establish their brand and gain long term growth and profitability in emerging markets.
The ultra low cost handset marketplace is currently dominated by Motorola and Nokia, but other handset manufacturers including LG Electronics, BenQ, Samsung, Philips, Ningbo Bird, Haier, and Kyocera have also started to introduce handsets for this segment.
As the winner of GSMA’s tenders for the Emerging Markets Handset Program, Motorola has already shipped six million sub-USD 40 handsets and another six million sub-USD 30 handsets to key emerging markets including India, Pakistan, Bangladesh, Indonesia, Philippines, Malaysia, Thailand, Turkey, South Africa, Nigeria, Egypt, Algeria, Russia, and Ukraine.
ABI Research expects that by 2011, almost one out of every four handset shipped globally will be an ultra low cost handset. The research shows that India will be the biggest market in the next five years, growing from a little over 9 million handsets in 2006 to more than 116 million handsets in 2011.
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