News : Handset market growth slows as economy contracts

By Tarmo Virki

HELSINKI (Reuters) - The global economic slowdown has started to crimp demand for new cellphones, leading top handset research house Gartner to lower its market growth forecast, and top phone-charger maker Salcomp to warn on profits.

Research firm Gartner cut its forecast for the cellphone market to 10-11 percent. At the end of May Gartner forecast 10-15 percent more phones would be sold this year.

"In the last month however, the economic environment started to negatively impact emerging markets as well as mature," Carolina Milanesi, head of mobile device research at Gartner, told Reuters on Monday.

Last year cellphone market volumes grew 16 percent year on year.

In April Nokia (NOK1V.HE: Quote, Profile, Research, Stock Buzz), the world's largest cellphone maker, warned the value of the cellphone market would decline in 2008 in euro terms, meaning average prices are falling more than volumes are increasing.

"Signals for a weaker than expected second quarter have arrived from Sony Ericsson as well as some component manufacturers," Milanesi said.

The world's fifth largest phone maker, Sony Ericsson (6758.T: Quote, Profile, Research, Stock Buzz), warned on June 27 it would make no profit in the April-June quarter due to weaker demand for its more expensive phones, and said the market was challenging.

"Despite expecting a stronger second half, we feel that the weakness of the first half has pulled the overall year growth down to 10-11 percent," Milanesi said.

SHARES

Shares in Nokia and Ericsson (ERICb.ST: Quote, Profile, Research, Stock Buzz) fell after the news, but later reversed the losses. By 1207 GMT Nokia was up 2 percent at 16.37 euros and Ericsson up 1.2 percent at 65.20 Swedish crowns, compared with a 1.6 percent higher Dow Jones Stoxx technology index .

Salcomp (SAL1V.HE: Quote, Profile, Research, Stock Buzz), the world's top maker of cellphone chargers, warned its 2008 operating profit would fall from last year's level, citing expectations of weaker volumes during the second half of the year.

Shares in Salcomp slumped 13.9 percent to 2.84 euros.

"As our clients have lowered their monthly forecasts for the products we supply chargers for, our sales growth in the second half is not as fast as we expected earlier," Salcomp Chief Financial Officer Antti Salminen told Reuters.

He said the firm -- which supplies chargers to the top five vendors -- does not expect to lose market share to rivals in the second half and its stocks are at normal levels, and cautioned against making direct conclusions about global cellphone demand from its warning.

Nokia will be the first of the top phone vendors to report, releasing its April-June numbers on July 17, a day before Sony Ericsson. LG Electronics will report on July 21, Samsung on July 25 and Motorola on July 31.

Nokia is expected to report a 16 percent earnings rise due to strong demand in emerging markets, yet its comments on the impact of slowing growth is likely to set the tone for its shares.

(Reporting by Tarmo Virki; Editing by Quentin Bryar and Sue Thomas)