Emerging Markets Prop Up Slow 3G Handset Sales For Vendors

Back in January, sales figures from 2005 and earnings from vendors showed that the handset market was booming -- but that sales growth was coming at the expense of average selling prices and profit margins. Continued growth in emerging markets, where consumers largely buy no-frills, low-cost (and low-margin) devices, hurts vendors' financial metrics, but rather than being an isolated trend, it looks like this is a new paradigm investors will have to accept. Third-quarter sales figures show continued growth -- with vendors on pace to ship more than a billion devices this year -- but sagging profits. The growth in emerging markets masks the real story: that vendors and operators are having a hard time pushing 3G handsets in more advanced markets, a factor leading cellular chipmaker Texas Instruments cited in its earnings news this week. Operators have done a pretty awful job of convincing people they should shell out for 3G handsets and services. This doesn't only hold them back, but it hits the handset vendors as well, and as long as the myriad obstacles to uptake remain -- including the usual suspects like the high cost of mobile data and poor usability -- alongside a lack of compelling services, 3G sales will remain depressed. So despite the lower level of profitability, emerging markets remain extremely important for handset vendors.