SAN FRANCISCO (CNN/Money) -
And ... they're ... OFF! Consumers, that is, off to the malls and to e-commerce sites in this, the most frenzied of shopping months. Take it from a man who was Santa Claus in a mall one holiday season many moons ago (and who can't wait to see "Bad Santa"): People get pretty crazy this time of year.
What are we buying this year? According to a recent study by tech market researcher IDC, many consumers in the United States are buying camera-equipped cell phones. So many, in fact, that the devices may soon outsell DVD players, heretofore the fastest-selling consumer product in history. Since the camera phone's introduction in 2000, some 80 million units have been shipped worldwide. That's more than twice the number of DVD players sold in the product's first three years.
For the cellular industry -- hammered by the two-fisted assault of declining revenue from voice communications and investor concern over the impact of number portability -- camera phones provide a rare ray of hope.
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Is the camera phone the Trojan horse the industry has sought? The application that would spur data usage and raise that all-important average revenue per user (ARPU) metric? For investors, are these sales gains already priced into the stocks or are bargains yet to be had?
First, let's examine the effect camera phones are having on the manufacturing and carrier industries. A big concern among the major manufacturers is that penetration rates in the United States are getting very high, and the only way to encourage sales is with replacement units and upgrades.
"Camera phones are the first new features that consumers have adopted," says Chris Ambrosio of Strategy Analytics. "Image phones are the first new feature to drive sales." Strategy Analytics recently increased its prediction for total worldwide handset sales in 2003 to 492 million from 430 million, and sales of camera phones played a "significant role" in that increase, Ambrosio says.
For carriers, the phones represent the long-elusive "foot in the door" for changing consumer cell-phone usage. With revenues from voice usage in decline, carriers need to bring the ARPU up, and pronto.
Camera phones are "very helpful" with increasing ARPU, according to Ned Zachar, an analyst with Thomas Weisel Partners. "Getting people to continue to spend $50 to $60 a month is absolutely important to the carriers' business model."
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One concern that analysts have about camera phones is maintaining user interest in the service after the spike that immediately follows a purchase.
According to IDC, nearly a third of users stop taking pictures entirely a few months after the purchase, and less than 20 percent say they use the camera for the type of spontaneous events touted by the industry's ads. "The upside is if you can convince folks to use these camera services, the volume will generate huge revenues," says Chris Chute, an analyst with IDC.
And how about for investors? Is there an upside remaining in the embattled cellular space? Most industry observers I spoke with regard the camera-phone trend as having a net positive effect on the industry but caution investors from jumping into the cellular space until more is known about how the companies handle the number-portability situation.
The first few days of number portability saw predictable hiccups, but it's too early to know exactly how the industry is reacting to the change. "The industry has gotten the hell beaten out of it because of number portability," Zachar says. "The market is assuming it's going to have a pretty negative impact. If and when it can be determined that number portability is a big or little deal is when you should make an investment decision."
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