Phone handset market stalls, Christmas fears rise

By Tarmo Virki

HELSINKI, Oct 30 (Reuters) - The world's top cellphone makers fear further weakening demand after reporting third-quarter growth grinding to a standstill, with only Samsung Electronics gaining market share through price cuts.

Although the overall market had not yet begun to contract, growth has slowed to zero in the latest three months from well above 10 percent in previous quarters as handset makers feel the pinch from slowing economies and the credit crisis.

Sales in key European markets continued to fall in the third quarter and in recent weeks, fears over weak Christmas sales and further waning demand next year have continued to grow.

Some analysts forecast the cellphone market to be hit harder next year especially in developed markets.

"Consumer demand is slowing in developed markets. I am a little worried the Christmas sales there will be a little bit of this and that," said eQ Bank analyst Jari Honko.

Honko said he expects volumes in Europe and North America to continue falling next year, but growth in emerging markets would pull the total market to a 2 percent rise. This would be a sharp drop from the double-digit growth seen in recent years.

Top phone maker Nokia forecast earlier this month 13.5-percent market growth in the fourth quarter, slightly weaker than in recent years, but reassuring for investors.

Having reported annual volume growth of 27 and 21 percent for the first two quarters, Nokia managed only a rise of 5 percent in the third quarter as sales fell in Europe -- by more than 5 percent -- and in North America.

Even more drastically, the annual growth of LG Electronics slowed from 54 percent in the first quarter and 45 percent in the second to just 5 percent in the third.

Motorola and Sony Ericsson have also struggled with internal problems during the year and reported quarterly sales at best on last year's level. Motorola's third-quarter data is due later on Thursday.

The only vendor among top five which was able to keep up the growth rate of the previous quarter was No 2 vendor Samsung, but it had to aggressively cut prices during the quarter to reach that, hurting its profit margin.

"Samsung has a clear ambition to win market share," said eQ's Honko.

Samsung's telecom unit operating profit margin dropped to 7.3 percent in the quarter from 12.9 percent in the previous quarter. Also Nokia and LG Electronics saw their margins dipping, but stayed well above Samsung's level, with 18.6 percent at Nokia and 11.5 percent at LG. (Reporting by Tarmo Virki; Editing by Mike Nesbit)