Falling handset vendor performance to pressure Taiwan OEMs

Fierce price competition in the global handset market has caused handset vendors such as Nokia and Sony Ericsson to see a drop in average selling prices (ASPs) and profits. Market watchers also expect Samsung Electronics, LG Electronics (LGE) and Motorola to report an decline in ASPs for the third quarter. Handset vendors are working to negotiate more favorable prices with their suppliers putting pressure on Taiwan-based handset OEMs.

Nokia has reported a third-quarter ASP at 72 euro (US$97), down from 74 euro in the second quarter; Sony Ericsson had an APS of 109 euro, down from 116 euro. Nokia's earnings per share (EPS) in the third quarter was down 28% sequentially while Sony Ericsson reported a loss of 25 million euro, its first loss of this size in the past five years. In addition, operating profits of the five leading handset vendors are declining due to fiercer price competition from high-end to low-end handsets.

Since Taiwan handset OEMs receive the majority of their orders from Motorola, Sony Ericsson and LGE, OEMs are expected to face more serious pressure to cut prices. This will be especially true in cases where the vendors work with two or more OEMs which can be played off each other for the best prices, the market watchers commented.

According to estimates from market sources in Taiwan, Nokia's third-quarter market share will decline from 40% to 38% because of delayed mid-range shipments while LGE will fall from 9% to 7.9% due to a loss of CDMA market share. The market shares of Motorola and Sony Ericsson will see slight growth and Samsung is expected to see 13% sequential growth.