On June 27, Sony Ericsson cited moderating demand for mid to high-end
mobile phones as a factor in its need to issue a profit warning for the second
quarter.  So are rising fuel, food and mortgage costs beginning to eat into
people's budget for gadgets?

According to a recent report by Gartner research, sales of mobiles in
Western Europe declined by 16 percent in the first quarter compared to the
same period last year - that's the first decline in the region since Gartner
began tracking mobile devices in 2001.  

A month later, Sony Ericsson offered further evidence of a slowdown in the
mobile sector when it issued a profit warning for the second quarter, citing
moderating demand for mid-to-high end mobile phones.

Casual observers would be forgiven for equating this to a firm indication
that inflation is beginning to curtail discretionary spending on gadgets.

CCS Insight analyst Ben Wood cautions against reading too much into the
recent spate of negative news.

Ben Wood, Director of Research, CCS Insight, saying:

  "Thinking from our perspective, it's unclear right now whether
there's been a real softening of demand in the mobile phone space.  Sony
Ericsson has had some broader problems with its business, mistakes in its
portfolio which have made some of its products and other offerings
unattractive for the last couple of quarters.  We believe that might
turnaround in the second half of the year."

In fact, if one were to look for evidence of consumer resilience amid
rising costs, there are indications are that it may come in the form of foot
traffic to stores belonging to Apple's mobile partners on July 11th.  That's
the day that the 3G iPhone makes its debut. 

In mid June, Matthew Key, the CEO of Telefonica Europe said 130 thousand
people had already pre-registered their interest in the device in the UK
alone.

Ben Wood, Director of Research, CCS Insight, saying:

"Undoubtedly there are going to be people waiting for the iPhone. 
What you've got to remember about the mobile phone is its part of the fabric
of society.  It's a very personal item for people and I think it reflects a
lot about their status.  If you've got a tough time going on elsewhere with
the household budget, it's a place where you can find a bit of solace and
perhaps treat yourself."

Gartner says mobile operators may be partly to blame for cloud over the
mobile sector - that by locking customers into longer contracts they have
extended the replacement cycle meaning people are waiting longer to buy new
mobile devices.

Matt Cowan Reuters.