Description 8 Segments 8

Introduction

The mobile device industry currently provides devices for approximately 4.1 billion users around the globe. Given that two out of every three people on the planet own and use a mobile device, this industry is key to providing essential tools for business, pleasure, and safety. The industry first picked up steam when the company Motorola developed the first practical mobile phone for use outside of a vehicle in 1973. The first citywide cellular network was then launched by Japan in 1979 and then in the US in 1983, the first mobile phone was approved by the FCC for use and made by Motorola. Since then customers have grown each year, phones have gotten smaller and more powerful, and smart phones seem to have taken over in 2009 and look to be the way we will do business in the future.²²

Globally, Nokia is the world’s largest manufacturer of mobile devices, along with Samsung, Sony Ericsson, Motorola and LG Electronics. While Samsung and LG Electronics are major players in the mobile device segment, these two companies cross multiple industries and will not be considered in this industry analysis. This analysis will focus on the US market currently and the key players for this analysis are Apple, Motorola, Nokia, Palm, and RIM (Research in Motion). Apple is represented as being the newest entrant with the successful iPhone^TM and Motorola as an original mobile device manufacturer to give a broad spectrum for analysis. These companies comprise many of the largest manufacturers distributing to the US and will give a good overview of the industry and various products available to consumers.

Segments

Within the Communication Equipment industry, five main segments emerge. These segments are: Mobile Devices, Enterprise Mobility Solutions, Mobile Applications, Home and Network Mobility, and Mobile Computing Devices.¹ The focus of this paper will be the Mobile Devices segment.

Socio-Economic Factors

This industry’s desirability is subject to multiple governmental and environmental factors.

The current regulation for the cell phone carrier industry is governed domestically by the Federal Communication Commission. The allocation of frequencies is regulated by the FCC in the US and by other agencies in foreign countries. There is a limited spectrum available to wireless service providers. The impact of the most recent auction of the 700 MHz bandwidth by the FCC is not known.²³

Current safety of cell phone usage, in particular texting while driving has become an issue. Laws have been passed regarding the use of cell phones in this regard. A current potential solution has been proposed to place a device blocking text messaging in moving vehicles. Controversy surrounding this device, and laws concerning the safety of cellular phones have recently shadowed this industry.

Research studies have been performed linking the radiation emitted from cellular phones to tumors. This has created some reluctance among subsets of users.²⁴

Cell phone usage has multiple security issues. Information can be stolen over unsecure networks (identity theft). Homeland Security has expressed concern because a cell phone can be used as remote detonation devices for potential terrorist activities. This was found to be the case in the post 911 Madrid Spain railway bombing.

International anti-trust regulations and standardization of cell phone carriers are a concern for cell phone manufacturers. Multiple networks have developed and created a need for phones to have multiple compatibilities increasing the need for larger storage and increased technology innovation.

Government policy may favor government owned companies or those in which the government has a controlling interest versus multinational corporations. Operating software for wireless devices and other intellectual property does not have the same protection abroad as it does domestically.

Standardization of communication protocols has been problematic. The formation of the Interoperability Group (IOP) for the standardization of Multimedia Messaging Service is an example of an attempt to introduce standardization. Exclusion from a group such as the IOP can create difficult hurdles to overcome.

Economic Indicators Relevant for the Industry

The current global economic downturn which began in the second half of 2008 has impacted the wireless handset industry, resulting in the slowing of end user demand. Industry experts have predicted shipments to decline 10% which would be the first decline in handset shipments since 2001. The expected decline would be a result of slowing growth in emerging markets and decreased replacement sales in established markets. As a wireless carrier, Verizon has had the slogan of “New every Two” providing end users with a replacement or upgraded phone every two years locking wireless clients into extending their contract agreement by two years. The economic downturn has created a subset of consumers who do not wish to be ties into a contract in economically uncertain times.

Revenue is expected to decrease at an average annualized rate of 4.9% through 2009. The industry is expected to contract in the five years through 2014, at a real average rate of 0.4%.

The uncertainty and volatility of global economic conditions poses a risk as consumers and businesses may delay investments in technology and innovation in response to tighter credit, negative financial news, or declines in current assets.

Economic difficulty could impact key suppliers resulting in product delays or potential abandonment of product lines, unfinished goods in process and unusable inventory.

Global markets for high tech electronic devices are highly competitive and subject to rapid technological change which when coupled with governmental factors can rapidly affect a manufacturer’s operations and financial stability.

The ability of regulators to influence the timing of the introduction of new technologies (such as the release of the 700 MHz bandwidth mentioned above) can create a situation where technology becomes instantly obsolete thereby adversely affecting the supply chain and disrupting the industry in general.