The worldwide mobile phone market felt the full effects of the economic crisis in the fourth quarter of 2008 as shipments fell 11.6% year over year, marking the first time the holiday quarter has not recorded double digit growth in seven years. This closed out a year that was dismal at best, yet overall 2008 managed to grow 4.3% over 2007. This has set the stage for what IDC predicts to be a very rough 2009, with the most recent market forecast anticipating growth of -8.3% for the year.

As consumer spending has dropped, handset manufacturers and mobile operators have reduced supply on hand, which has left chip vendors with increased inventory. Inventory management has had a dramatic impact on shipments, but consumer demand is not falling as fast. Large chip vendors have been working to restructure inventory levels over the past couple of months to deal with the expected downward year and should see some stabilization once inventories are reduced.

Mature regions such as Japan, the United States, and Western Europe all face tough times, with predictions of shipment declines ranging from -24.6% to -12.4% throughout 2009. In these markets, operators are struggling to find the right mix of marketing and device subsidy to entice consumers to spend while finances are tight. The double-digit growth rates the BRIC countries (Brazil, Russia, India, China) have seen in the past are also expected to slow to a collective growth rate of 0.3%. India still remains the bright spot within that group, while Russia is experiencing a severe cut back in consumer spending and is predicted to drop significantly.

"Expectations for 2009 were negative going into the fourth quarter of 2008. However, worse-than-expected results and a steady flow of negative economic news are indicating that 2009 will be gloomier than predicted," said Ryan Reith, senior research analyst with IDC's Worldwide Mobile Phone Tracker. "Concern is understandable during this time, but note that the mobile phone market still has plenty of room to grow on a global scale and we expect recovery will begin in the first half of 2010."

The outlook for converged mobile devices (also known as smartphones) has also been scaled back as a result of the industry's changing dynamics. The previously stated 8.7% growth has been reduced to 3.4% as IDC expects all segments to be effected. In the years to come the industry will undoubtedly migrate more toward the converged device segment, yet in tough economic times the high price point these devices carry can tend to stand out in the consumers eye. The notion that this segment will remain in positive growth while the industry expects an 8.3% downturn speaks volumes about the potential upside for these devices when the market turns.

"The explosive growth of mobile applications adds a new dimension to converged mobile device growth, one that has resonated with users worldwide," says Ramon Llamas, senior research analyst with IDC's Mobile Devices Technology and Trends team. "The success of the Apple iPhone and App Store has shifted the paradigm for consumer behavior around this category, and new mobile applications pop up every day. Now that other companies are poised to launch their own mobile application sites this year, IDC expects continued growth for converged mobile devices in the face of an challenging market overall."