Cell Phones Becoming Profitless

saccade.com writes "EE Times has a fascinating article on how electronics companies are being sucked into a profitless spiral by the cell phone market. More and more of the small consumer gadgets are being folded into the phone: camera, music player, PDA, GPS, etc. So the market for non-phone gadgets is slowly going away as the phone picks up more functions. However, consumers don't buy most phones; they are given away (or sold very cheap) by the service providers as hooks to get people to sign up for mobile service. So the service providers are demanding (and getting) rock-bottom prices for fancy phones they can give away, and the micro chip companies are forced into brutal competition for a market that is shrinking into a single commodity gadget, the phone."

Comments

Crossing the Chasm

[iendedi]

Cell phones are in the process of crossing the chasm between phones and replacements for your PC. Until this job is complete, margins will be way down.

In three years, I will bet anything that you will be able to connect a bluetooth mouse, keyboard and some sort of monitor to your cell phone (probably via it's charging cradle). For most users, these devices will be powerful enough to toss their PCs for good.

But to get there, the industry is running uphill at a breakneck rate - features and technology are going nutz - it is EXPENSIVE to make this transition.

Re:Crossing the Chasm

[kryonD]

C'mon guys, someone go fetch the cluebat. If you want to see what the cell ohone market will look like in 3 years, book a flight to Tokyo. As far as cell phones replacing items like mp3 players, it just ain't gonna happen. DoCoMo released an mp3 phone about 4 years ago in Japan and it failed miserably for two reasons. #1 Cost - which has largely been mitigated since then, and #2 limitted battery life - which is still as much a reality here as anywhere else. Producing continuous sound draws juice. Hardware decoding draws juice. Even in Japan's advanced cellular tech industry the best phones still only get between 2.5 to 3 hours of talk time in realistic use. Unless the handset makers all agree on a standerd charging adapter that restaraunts and coffee shops would then agree to provide, people are just going to get pissed off way too fast when they are listening to their latest "Bittany Thpears (southpark lisp spelling intentional) Album" and they finally get an important phone call, but the battery is too low from playing music.

The only earth shattering news about our cell phone market is that we continue to put up with hand-me-down technology from Japan and Europe and we also continue to pay way too much for it. The latest Samsung phone released here in the US has finally met the same standards as the NTT phone I bought 3 years ago in Japan...except it's $300 here and my phone back then only ran me 12,000yen (~$100). But if I sign up for a one year binding contract with T-Mobile, they'll discount it down to $200...woohoo.

The only reason why a mojority of handheld features are going into cell phones is because 95% of people don't NEED the full features of a handheld, and the small subset of features they do need (calendar, todo, adress book) are easy to implement in a cell phone. I consider myself a technology freak and I would never pay extra money for a cell phone that will open word documents because I have never been so damned busy that I couldn't wait to open it on a regular computer.

Re:No, I did not read the article...

[maxbang]

My thoughts exactly. I did rtfa and I don't buy it. Much like the all-in-one printer/scanner/copier/phone/fax/kitchen sink devices out there, I'd much rather have a few gadgets which do their job excellently than one which does several jobs in a slip-shod manner. I don't like camera phones. They're slow and have horrible resolution. The PDA/phone hybrids are much too large to carry comfortably in my pocket. I'm completely happy with paying $150 for my small cell phone which gives excellent reception in most locations, a couple more hundred for my digital camera, and some more hundreds for my Neuros MP3 player. And, most of my friends feel the same way. Some day when miniaturization and overall quality of such products improves, then I'll reconsider.

Phones are profitable

[ljavelin]

Of course cell phones are profitable - if they were not profitable, the cell phone manufacturers would create more profitable products.

And in fact, that's what they do.

Of course, for tax purposes, it is best if they show on the books that they lose money. As we've seen in many industries (manufacturing, healthcare, defense, MLB, etc) it's rather easy to show enough loss to avoid paying taxes. It is fact that corporations (at least in the USA) pay many fewer taxes as they did 5 years ago. The primary reason? Tax avoidance through "magic" accounting techniques.

If there was no money in the business, the shareholders would put a stop to it - after all, most cell phone manufacturers make many other products. But amazingly, looking at the past 5 years, share prices remain fairly stable compared to the overall tech sector.

Re:Phone upgrade addiction

[JanneM]

In most of the world, phones _are_ sold to consumers. While European service providers also use cheap/free phones to lure customers, there is no obstacle here to use whatever phone you want with a given subscription. Lots of phone stores and home electronic stores have display cases filled with phones of all kinds.

The problem really is created by the manufacturers as much as the providers. The phone has become a fashion item; for quite a lot of people, the phone you use tells others about who you are. Thus people tend to want to get a new phone very often, as fashions and designs change. That drives down prices a lot, as people can't afford to get a new, really expensive, phone every year, and on the other hand, the manufacturers dump the prices of their new models in order to make them the next must-have.

In a sense, it's the SIM card that defines their phone for people - that's the thing that holds their subscription, as well as address lists, phone numbers and so on. The phone hardware it currently sits in is just another fancy shell, to be discarded whenever the next model comes along.