Consumers in the U.S. bought 31 million mobile phones in Q1, spending $2.7 billion, according to data the NPD Group will release tomorrow. The problem: That’s a 22% year-over-year decline in unit shipments and a 7% decline in revenue from Q1 2007 — in an industry that’s still supposed to be growing.
So what’s going on? “With looming economic concerns on the horizon, many consumers may be holding back on new handset purchases, especially those tied to new pre-paid plans,” NPD Group analyst Ross Rubin says in a statement.
This makes sense: You typically buy a new phone when you’re first signing up for mobile service, when you switch providers, or as an upgrade a year or two after you start service. (Or for some people, whenever you want — discretionary upgrade to iPhone, BlackBerry, whatever.)
If you’re light in the wallet, you might skip the $100 upgrade your carrier offers you — or you might not buy a new pre-paid phone at all. Supporting evidence: Prepaid mobile giant Virgin Mobile USA (VM) said in its Q1 earnings that most people leaving its service weren’t leaving for a competitor, but were discontinuing wireless service because they couldn’t afford it anymore.
Silver lining: Mobile phone revenue fell less than unit sales, so those who are buying phones are, on average, spending more for them. Smartphone sales increased to 17% of all phones in Q1, up from 7% from Q1 2007. This is good news for high-end phone makers like RIM (RIMM), Apple (AAPL), etc., and should provide a healthy market for Google’s (GOOG) Android phones.
Update: Another potential reason, via NPD’s Rubin, who we just chatted with. He supposes that when family plans are coming up for renewal, the head of household is only replacing a few of the phones — not all of them. This, he says, is showing up as weakness in the $75,000-99,000 income bracket, which saw the biggest decline in unit sales.
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