Although market leader Nokia Corp. stumbled in the first quarter, most of the rest of the world’s handset makers managed to cash in on what analysts predict will be the biggest year ever for the mobile-phone industry. Indeed, Sony Ericsson Communications L.P., LG Electronics Co. Ltd., Motorola Inc. and Samsung Electronics Co. Ltd. all posted solid first-quarter gains-evidence that Nokia’s grip on the market may be slipping.
“Nokia’s long-term goal of 40-percent market share looks increasingly unrealistic, given its poor performance in the first quarter of 2004 and the disappointing outlook for the second quarter,” wrote Gartner analyst Ben Wood in a research note. “Nokia’s main priority must now be to stabilize its market share by the third quarter and hope that it can reverse the current decline in the fourth quarter of 2004 with new models. With aggressive competition from Motorola, Samsung, LG Telecom and Siemens, this will be a challenging goal to achieve, despite the generally encouraging climate for mobiles.”
However, Nokia’s No. 1 position is not likely to be challenged anytime soon. The company still claims market share of about 35 percent with sales of 44.7 million phones in the first quarter. The numbers put Nokia way ahead of No. 2 vendor Motorola, which managed first-quarter sales of 25.3 million.
Consequently, the industry’s real battlefields are likely to be fought over the No. 2 and No. 5 market-share slots. Although Motorola pulled away from No. 3 vendor Samsung in the first quarter, the Asian consumer electronics giant continues to nip at Motorola’s heels. And Sony Ericsson and LG are still locked in a neck-and-neck race for the No. 5 slot-Sony Ericsson managed to swipe it back in the first quarter after two quarters in the No. 6 position. Only Siemens’ situation remains up in the air; the company reports its results Wednesday.
“Whoever stumbles first (between Motorola and Samsung) will probably be the one to lose,” predicted Chris Ambrosio, director of Strategy Analytics’ Wireless Device Service.
Motorola wowed with major first-quarter results, a welcome respite for investors battered by several poor quarters. The company’s mobile-phone division posted sales of $4.1 billion, up 67 percent compared with the same quarter a year ago. More importantly, Motorola’s operating earnings more than tripled from the year-ago quarter to $398 million. The company said it managed to improve market share in Europe and elsewhere with sales of new products, including new camera phones. Further, Motorola promised it would continue to score gains in the coming quarter with an increase in sales of as much as 40 percent from the same quarter last year.
Sitting behind Motorola is Korean vendor Samsung, which has consistently posted major gains throughout the past several years. The company continued its march on Motorola with impressive sales, clocking in with 20.1 million first-quarter phone shipments. Such numbers would have put it alongside Motorola only a few quarters ago, but Motorola’s stellar first-quarter sales of 25.3 million pushed it ahead of the Korean vendor.
Now, Ambrosio said, the stage is set for an all-out war between Motorola and Samsung for the No. 2 position-both companies predict gains and both compete primarily in the mid- to high-end phone market. The first company to falter will likely lose. “My attitude is, wait and see,” he said.
A similar battle is playing out between LG and Sony Ericsson. Although LG pushed past the L.M. Ericsson and Sony Corp. joint venture last year, Sony Ericsson managed to regain the No. 5 slot in the first quarter-but just by a hair. Sony Ericsson recorded sales of 8.8 million phones in the quarter, while LG scored sales of 8.75 million.
“I think Sony Ericsson has come on strong,” Ambrosio said. “I would say those two are still in a neck-and-neck race.”
Sony Ericsson posted sales of $1.6 billion and a net income of $98 million-the company’s third profitable quarter. LG recorded sales of $1.4 billion in its phone division. Ambrosio said Sony Ericsson would have to defend its GSM territories in Europe from LG, which primarily sells CDMA phones but is working to expand its GSM portfolio. Sony Ericsson last year shut down its CDMA phone business, which has largely contributed to its improved earnings.
Ambrosio said Nokia has enough strength and resources to recover its leading position, as long as the company refreshes its product line-up and expands its sales. Nokia posted sluggish first-quarter sales due to what the company said was a lack of mid-range phones in Europe. However, Siemens’ first-quarter results could shed additional light on the extent of Nokia’s faltering. If Siemens posts strong sales of low- and mid-range phones in Europe-Nokia’s stronghold-it could mean that Nokia’s faltering extends beyond just mid-range phones, Ambrosio said. Thus, Nokia would be facing pressures on both the high end from Motorola and Samsung and on the low end from Siemens.
