Feast or famine (probably famine); 2009 should be another interesting year for the tech sector. After all, any industry that can provide sexual performance drugs (Viagra) for the CIA to give to Afghan warlords is always going to find room on the front pages of every news outlet in the world.
One technology sector that could suffer more than most is the cell phone industry, especially smart cell phones. I saw where Wal-Mart is going to begin selling iPhones today (Sunday, the 28th of December) making the popular phones even more popular and pervasive for U.S. consumers. The big question, however, is who’s going to buy one?
For the record, Wal-Mart is selling the black 8-gigabyte iPhone 3G model, which holds about 2,000 songs, for $197. The 16-gigabyte model, in black or white, will be priced at $297. All of the phones require a new two-year service agreement from AT&T or a qualified upgrade, Wal-Mart said in a company statement. The retailer added that its stores could match local competitors' advertised prices during a promotional period. Rumors are also afloat over a proposed 4-Gig iPhone being sold through Wal-Mart, although nothing official has been reported.
Maybe Apple should come up with a cheaper model, if that’s what it takes to get consumers buying iPhones in ’09. But even then, cell phone industry observers aren’t so sure.
“We expect Q1 ’09 to be the worst absolute quarter in terms of year-over-year decline for the industry,” says Michael Walkley, analyst at Piper Jaffray, in a research note last week. “We’re modeling a 16-percent drop in year-over-year handset sales in Q1 ’09, and finishing down 9 percent year-over-year for 2009."
With cash as king, it will be the survival of the fittest among the big industry players – with some cell phone makers taking steep losses and fighting to stay in business.
“Everyone’s anticipating weaker trends into 2009, so everyone wants to hold on to cash,” Walkley says. “This slowdown we’re seeing is much more of an inventory correction than that of demand.” He taps Nokia , Apple, and RIM, as cell phone providers that will weather the storm; and points an icy finger at weaker providers like Motorola and Sony Ericsson as companies that will fight to stay afloat.
“If you look at the last downturn, six handset companies ended up going out of business,” Walkley says. “It’ll be survival of the fittest, and you’ll see the potential for some companies to shut their doors, and the ones who survive will come out stronger.”
The question then becomes, how long will all this take? Nobody really knows for sure. Most likely, look for a weak first half in the global economy, with U.S. GDP falling 6% in Q4 of '08 and about 4% in the first quarter of '09, before things flatten out by next summer. Maybe then cell phone makers can come in out of the cold.