Russian market of terminals in the 4Q 2003. Results of 2003.

Press release, January 19-th 2004

Statistics: Official sales of terminals on the Russian market suggest 4 053 000 units in the 4Q while in the third quarter the sales volume was 4 529 thousands. Sales fell by 11.5 % and the main reason for that - shortage of the equipment. Volume of the grey market was 4.5%. It is the lowest for the last several years. Total market volume in 2003 was 15 million 117 thousand of mobile terminals (these figures include grey market).

Short description of the market situation. For better understanding of the market situation let us return back to the data of the 3Q. The market shares of the third quarter are as displayed below.

Shipments of mobile terminals into Russia from mobile phone companies are as follows. We’ve decided to provide you with the wholesale deliveries from the manufacturers (sell-in), instead of the retail sales:

The amount of the shipments comparing to the first six months has grown for all manufacturers. Some of them even faced the lack of capacity; they had been unable to satisfy the demand on Russian market. We’d like to remind you that European market is the top priority for most manufacturers, except for LG who are specializing on Russian market. Third quarter’s sales were so high that the storages were almost emptied. And now we can see a deficiency of mobile phones in stores.

One of the reasons of deficiency is amazingly high demand on mobile phones around in Europe, another one is underrated predictions for Russian market made by the manufacturers. The predictions were rather pessimistic; the sociologists didn’t notice the growing market with high demands. In conditions of low demand for phones in Europe the given strategy is justified. But it stops working as soon as the phone become highly demanded at all markets, representations of the manufacturers are struggling to get a bigger quote for their region. This is what had happened at the Russian market.

Sony Ericsson can probably be recalled as a typical example. The shipments to Russia decreased 5.5 times, from 410 thousands to 75. The most popular model, T610 had really small number of shipments meanwhile slightly popular T100 had large amount of copies being sent to Russia.

The increased demand affected Siemens as well. The decrease of the shipments was not so significant, however it was noticeable. The company’s representatives marked out several times that the demand is significantly exceeding the current offer. This situation was occurring with almost all companies that are represented in the Russian market. The only difference was that one of them had the handsets, and the others didn’t. Samsung, for example, couldn’t handle the demand for its C100 when it was released. This lead to short rise of retail prices for this model, since the distributors were trying to correct the lack of handsets by their price.

Increase of sales for the second players can be used as an indirect confirmation for this situation. When there is no headsets from the “big four” of the manufacturers – the small ones have occupied their niche. Their shipments were at the highest level, and the sales went great for almost all models in the budget and middle price segments.

When we are saying that all manufacturers were experiencing the lack of available handsets, we’d had to exclude Nokia. They weren’t having such problems; each distributor was able to purchase as much handsets as he needed. The only model that had sort of deficiency was budget model Nokia 3310, which still remains Nokia’s most popular model on the Russian market.

An average price for a Nokia phone is about 153 dollars (wholesale prices for all line-up of handsets). Samsung is the only company that has even higher average price. However apart from other manufacturers we can see that Nokia has slower realization of their products in the retail networks (4-5 weeks vs 3-4 in the usual case), this negatively affects on wholesale shipments to Russia. The company put a lot of effort during Q4 in order to fix this problem; they’ve started working on providing the distributor status for several companies at once. You want to know the companies names? Well, it wasn’t hard to guess, if you are analyzing Nokia’s activity. For example in Moscow they’ve tried to take Siemens place in Alt-Telecom’s shop network. This negotiation took place in Q4.

Similar situation occurred with “Svyaznoy” shop network, who are Siemens biggest partner. Siemens sales share in Svyaznoy decreased from 36 to 20 percent during last year. Maxus (owners of Svyaznoy) commercial director Denis Lyudkovsky mentioned this in an interview to Russian local newspaper. The fact that Nokia’s products partly replace Siemens from now on looks logical.

The third factor is company’s Anarion position, who have made an agreement with Nokia in Q4. This company may soon become the official distributor for Nokia’s products, if they decide this action to be worthwhile.

Nokia really needs attracting big retailers to their products realization. This is the only market in Russia where expensive models are in demand.

Without looking at Nokia’s efforts, commodity stocks in warehouses of distributors have grown, and its total number became incredibly high on the 1st of January – about 320 thousands of terminals. About 80% of them are expensive models that cost more than 150 dollars. Something tells me that Nokia will try to get rid of these phones during 1Q of 2004. Seems that Nokia will use the good old big price cut tactics for one or two models; that are the most attractive for the consumer. These models will start playing a role of a steam locomotive; the sales of other models in the same line-up will rise as well. Similar tactics was used by Nokia in Q1 of 2003, however it lead to a crisis, a lot of small distributors who don’t have direct contacts with Nokia had material losses.

Nokia’s position on the Russian market was partly saved because of the growing phone replacement market (people buy new phones instead of the their old ones more often). This market’s segment became 2x times larger during the year 2003. The maximal size of the replacement market for Moscow was observed in December, it was about 24 percent. It is necessary to take into account annual splash of interest for expensive phones, it usually occurs by the end of the year. But even without looking at the last month, overall growth of the market became nearly 2x times bigger. However it’s only related to Moscow, if we take Russia in general – the progress will not be so impressive, about 1.5 times bigger instead of 2.

Some more words about Q4’s sales. Here are the results of terminals shipping in Âîçâðàùàÿñü ê ïðîäàæàì êîìïàíèé â ÷åòâåðòîì êâàðòàëå, ïðèâåäåì äàííûå î ïîñòàâêå òåðìèíàëîâ â quantitative expression. We’d like to point out that Alcatel’s high sales are closely connected with successful cooperation with operators and that some of the shipments were not counted during the previous periods. We added them to this Quarter, and look what we’ve got in the end:

The grey market in the 4Q as well as in the 3Q was very small. Shipments of exclusive models, really interesting for customers but not officially announced have increased.

The volume of grey market in the 4Q was 4,5%. It is the lowest value of the grey market for the last years. It proves that mobile phones are demanded in Europe, really cheap models are absent.

In the end of the year total market volume (including grey market) was 15 million 117 thousand terminals. Market shares of the companies are as follows.

During the last quarters Motorola was the leader of the market concerning number of shipped terminals. At the same time Nokia had very stable positions and the success of Motorola didn’t affect alignment of forces. Now the companies have equal shares (the difference in 14 500 terminals is not significant (the data include grey market!)). If the same scenario continues next year, Nokia could stop be the leader of the market. The company needs more low-end solutions. The share of cheap phones on the Russian market is constant and it will decrease in the end of the 3Q 2004.

Samsung continues to increase its sales. During the year the company showed impressive results. Now the company occupies 16% of the market, the same share has Siemens. During 2003 German manufacturer was losing its market share due to several reasons. The main one was lack of terminals.

Forecast for 2004

Basing on market dynamics it is possible to say that the market will continue to grow in 2004. Mobile Research Group estimates market of terminals in 2004 as 21,5 million. It is an average estimation taking into account favourable macroeconomic situation. Estimations of most vendors are about 18-19 million of terminals. The situation of 2003, when not true forecasts couldn’t allow some players to increase their sales, may repeat again. In our opinion, the situation of the first half of the year will develop according the classical scenario. In spring the demand in the price segment of 150 USD and lower will increase because people will go at the country to “ditches”. The main shipments in the 1Q will begin in the middle of February, the demand of customers will be satisfied in March. It will be favourable conditions for overstocking. The development of the situation will depend on the actions of the main players. If Nokia put prices for several models down, the crisis situation of 2003 will repeat. If not, the market will continuously grow till the end of the year, the greatest sales will be in the 4Q.

The struggle for the first place on the Russian market of terminals will continue in 2004. Motorola is a favorite, because it has a big potential for growth: strong positions in the low-end segment, absence of expensive models in 2003… Samsung is also a serious competitor for Nokia, because it has products in the same segments. In the end of the first half of the year Samsung will overpass Siemens (now the difference is 75 000 of terminals in favour of Siemens). Speaking about money volume, Samsung maintains the lead positions. In our opinion in the end of 2004 the company could occupy the second place by number of terminals and the first place by proceeds. It will depend on Nokia’s strategy on the market.

About Mobile Research Group

The main activity of Mobile Research Group (http://www.mobile-analytics.ru) - is mobile terminals market researches in Russia. The company analyses the competitive situation of all mobile phones manufacturers available on the Russian market, and researches retail and wholesales of mobile terminals. Basing on analyzed statistic data the company makes a forecast of the mobile terminals market development for some period (up to one year). According to concluded partnership agreement once a quarter the company presents a market analysis report, where the most considerable events and their results are marked.

Publishing data contained in this press release without a link to the Mobile Research Group as a source of information is prohibited. We reserve the right to change data published above if any new circumstances or new information earlier unknown to us arise.
© Mobile Research Group, 2004

Eldar Murtazin ([email protected])
Translated by Alexander "Lexx" Zavoloka([email protected])

Published — 30 January 2004

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