The worst financial crises in history is continuing and worsening, and I, together with most people in our industry, is wondering what direct impact this will have on our business.
If I knew this, I would be rich and famous, but I will still try to point out a few possible impacts\scenarios, from my position in the value-chain (mobile phone distribution)
First of all, I do not think that the financial\liquidity-crises will last more than 1-4 months, but the impact of negative growth (recession), will be felt for a much longer period. Most of the governments in the world are and will work closely together, as we have seen in Europe, to bring financial stability back. That kind of cooperation will bring the world closer and is a very good thing for future development and stability, including less military intervention.
When it comes to the prediction of the overall sale of mobile phones, I do think we are going to see a dramatic drop in demand. I will not be surprised to see a 20-30% drop over the next 12 months. Half of this is related to the overall economy and I think that this crises, also will lead to an overall drop in subsidies from the Operators, which again will lead to a drop in sales. This will of course have dramatic impact on the players in the value-chains. Huge losses on inventory will occur for both manufactures, distributors, retailers and not to mention, Operators that owns their handsets in the warehouse and shop.
If this hits as hard as I think, we will see less new products coming out from the production line, reducing the innovation and maybe margins. (On the other hand, this may be a good thing for the industry, getting more economy of scale etc.)
I also think that both big retail-chains and small mon and pop stores will face big problems. Rotten inventory has to be written down, less mkt money from supplier, less mkt and subsidy money from the Operator in addition to much lower volumes, will have dramatic effects. on each shop The big retailers will be hit twice, due to the downturn in overall sale of electronics. I do not want to hold shares in these guys….
But the biggest looser will be the Operators. Write-downs on inventory, negative growth on new subscribers (which will hit the shareprice) and worst; less margin (ARPU) due to overall reduction in spending, increased price war and a move towards new technology for communication. In practical matter this means more use of SKYPE and WLAN etc. Oi oi this will hurt....
The segment where I come from, the Distributor-business, will face one big challenge and one big opportunity. First the challenge; CASH\liquidity. If a distributor does not have it today, he will not get it tomorrow, and are then dead or almost dead… If a distributor have financial strength, the world is open for enormous opportunities. (if the owners and mgt have energy and will). Due to huge problems and losses, both on the Manufacturing level, Operators and retailers, they will want to (or must) outsource the risk of inventory and financing\credit to a trusted partner. If this partner also, in a flexible matter, provide with local\market customization on the handset, this player will grow and become a success.
Due to the overall financial situation, we will of course see, as in the bank industry, massive consolidations. Many of the players will go bust or be bought.
If I would make a guess related to winners and losers, it would look like this:
Winners: Major Players with big money and aggressive strategies. Nokia, Samsung, HTC, O2, Telenor, Brightpoint, Carphone warehouse (maybe..)
Loosers; Everybody with little cash \ credit and marketshare: Motorola, Apple, France Telecom, TDC, Brightstar, 2020, small independent retail-chains and specialty stores.(far too many of!)
** When commenting on the Operators, I do not take into account their challenges with acquiring licences, building networks etc. This is a total different playing field, I do not know much about, but due to major problems related to the financing of this, it will further increase their willingness to outsource as many thing as possible, changing the value-chain dramatically. This will prove right in big countries like the US, in addition to the largest countries in Europe.
This was a big subject with many personal views. If you have a comment pls use the comment-icon. I would love to be challenged and or corrected by you J
