Mobile Sales Drop Tied To Hangups About Economy

cellphonesA drop in mobile phone sales may be the latest sign that the stumbling economy is taking a toll on consumers. Unit sales of mobile handsets in the U.S. fell 13% to 28 million in the second quarter compared to the year-earlier period, according to market research firm NPD Group.

That marks the lowest quarterly total since NPD began tracking the category in 2005. "That lends credibility to the argument that the economy appears to be more of a factor than anything transpiring in the industry," said Ross Rubin, director of industry analysis for Port Washington, N.Y.-based NPD.

Handset unit sales totaled $2.4 billion, a 2% drop from a year ago.

Average handset prices have increased 14% over the last year to $84, but fell by $3 since the first quarter because of lower prices on brands such as LG, Motorola, Nokia and Research in Motion (RIM).

Despite slipping sales overall, smartphones such as RIM's BlackBerry and the iPhone continue to make up a growing proportion of handset sales at 19% compared to 9% a year ago.

"That may indicate there's a group of consumers that see value in wireless data and media and are willing to upgrade their phones to take better advantage of those capabilities," Rubin said. "But there's still a large segment of consumers that can't justify the value in it."

In addition to carrying a higher retail price, feature-laden smartphones also typically require the additional cost of a one- or two-year data plan. Rubin said phones with QWERTY keyboards--which do not necessarily qualify as true smartphones--saw the biggest gains, jumping from 12% to 28% of handset sales (think text-messaging teens).

Further signaling the spread of media-centric phones, 65% of phones purchased had music players--up from 45% a year ago--while 81% were Bluetooth-enabled, up from 69%.

Among device manufacturers, struggling Motorola managed to maintain its U.S. market share lead during the quarter, but only barely. With its share sliding from 32% to 21%, competitors such as Samsung and LG each claimed 20%, while Nokia had 9% and RIM, 7%.

Motorola plans to sell or spin off its phone unit in 2009 to focus on its profitable business selling set-top boxes, radios and networking equipment.

Rubin said iPhone sales slowed in the quarter because of a shortage of inventory and consumers holding back from buying in anticipation of the release of the iPhone 3G in July. While the new, more affordable model has been selling briskly, Rubin said Apple still does not have the distribution to match the sales of competing smartphones.

"One model offered by one carrier (AT&T) is going to have a hard time competing in value, say, against a BlackBerry Curve or Palm Centro, which is a much lower priced device now," he said.

Even so, AT&T managed to increase its market lead in handset sales to 29%, followed by Verizon Wireless at 26% and both T-Mobile and Sprint at 11%.

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