Research Notes

Terminal sourcing – a rising risk

The launch of many different types of handset models has resulted in an increasing risk of misjudging a handsets market potential from both the handset manufacturers and mobile operators.
Now the various market players are expected to have an increasing number of different handset models available in stock, which will naturally have a large influence on the size of their “Stock Rotation Risk” – a stock risk that will affect distributors, mobile operators, mobile providers without their own network and mobile dealers.
Previously the number of handset models available on the market was relatively limited, which resulted in a relatively modest risk of having surplus stock of outdated mobile handsets. With the significantly increasing number of handset models being manufactured by the handset manufacturers, this risk is however significantly increasing for all the players in the distribution chain of mobile handsets.
And it is not only the risk of being left with surplus mobile handsets on your hands, but also the risk that the handsets will depreciate in value while they are in stock and furthermore that the depreciation will increase due to the handset manufacturers ongoing price reductions. The handset price reductions are either a result of competition from new types of handset models, or that the manufacturer has launched an updated version of the model, resulting in a price reduction on the “old” model. Many surplus mobile handsets are therefore sold at a loss and as the price reductions on mobile handsets are usually relatively significant, this can result in significant losses for the different market players (price reductions of 20-30% overnight are not uncommon).
The massively marketed N-Gage handset from Nokia is one well-known example of the risks involved in having a large stock of handset models targeted at specific customer segments. Nokia’s N-Gage model was a sales flop and resulted in a great number of mobile operators and dealers ending up with large numbers of unsellable N-Gage handsets in stock, which they ended up selling far below their cost price.
You can find much more information about “Stock Rotation Risk” in our latest reports –  How to Succeed in the Second-Generation MVNO Market– that describes and analyses the challenges and possibilities of mobile handset sourcing in the mobile universe.

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