Motorola Inc. emerged the clear winner of the second-quarter handset battle. The company’s strike at Nokia Corp.’s dominance in the low-end phone market scored a direct hit, while it also managed to gain on Samsung Electronics Co. Ltd. in the high-end market.
“It’s kind of feeling like the grand slam,” said Ed Zander, Motorola’s chairman and chief executive officer. “We are very pleased; we are very excited.”
However, investors appeared to have anticipated the company’s success; Motorola’s stock price remained relatively unchanged at around $20 per share following the news. Most analysts had predicted a solid quarter from the company.
Motorola shipped a record 33.9 million handsets in the quarter-a number the company said gives it a solid No. 2 position with around 18-percent market share. No. 3 player Samsung Electronics Co. Ltd. shipped a relatively sluggish 24.4 million phones in the quarter, while market leader Nokia recorded shipments of 60.8 million.
Motorola’s attacks covered both ends of the phone market. On the high end, the company continues to enjoy sales of its super-slim Razr device-it has sold 5 million of the gadgets. Motorola’s success in the high end puts it in direct competition with Samsung, which has long relied on sleek, expensive phones to bolster sales. Samsung’s management indicated the company will continue to focus on the high end, premium phone market and that the company will not sell cheaper phones in order to regain market share.
On the low end, Motorola took a major swipe at Nokia through its previously announced agreement with the GSM Association. Motorola earlier this year announced plans to sell $40 handsets through the GSM Association in places like India and Pakistan, and it began filling orders in the second quarter. Investment banking firm UBS said Motorola shipped 1.2 million of the low-end phones during the quarter.
Nokia’s chief executive, Jorma Ollila, acknowledged Motorola’s strides in his comments about the growing handset market.
“This growth came primarily from emerging markets where low-end products predominate and pricing pressures are currently intense,” he said. “We currently believe these trends will continue for both the industry and Nokia for the remainder of the year.”
Motorola’s successes moved Zander to declare the company’s grand long-term goal-regain the No. 1 spot in the worldwide handset marketplace. Motorola, the first company to market mobile phones, lost the top spot to low-cost vendor Nokia in the 1990s.
Zander promised to expand on Motorola’s plans during the company’s annual analyst meeting this week in Chicago. He said the company also will unveil a range of new devices at the event.
Along with solid handset sales, Motorola also posted gains in the rest of its businesses. The company recorded $8.8 billion in companywide revenues, a 17-percent jump from the same quarter a year ago. Further, the company’s earnings per share exploded by 52 percent to 38 cents, way ahead of expectations of 25 cents per share.
Nokia posted financials in line with expectations. The company’s revenues clocked in at $9.8 billion, up 25 percent from the same quarter last year, and its net income also increased to $971 million.
While the larger players battled for market share, those on the lower rungs suffered under thinning profits. LG Electronics Co. Ltd.’s earnings tumbled 70 percent, partly on the fierce competition the company faces in the mobile-phone market. Indeed, LG posted a loss in its handset business-$3.9 million-for the first time since the company entered the worldwide handset business. Samsung Electronics Co. Ltd. and Sony Ericsson Mobile Communications L.P. also posted lower second-quarter profits. Such results reinforce industry consensus that only the largest mobile phone players will be able to weather market battles.
“We continue to believe that the handset market is entering a period of significant consolidation as industry volumes and value-growth slow,” wrote Maynard Um, an analyst with UBS. “We believe Motorola and Nokia, the two largest-scale players, will continue to consolidate market share during this period. We continue to believe that annual volumes of at least 100 million units is required for a company to sustain double-digit operating margins. Increased research and development as well as sales/marketing expenses (are) likely to continue to impact sub-scale players with increased margin pressure resulting.”
Despite increased competition, industry observers also believe the market will continue to expand. Research and consulting firm Gartner predicts mobile-phone shipments will cross the 1 billion-per-year mark in 2009, which could make handsets the most common consumer electronics device on the planet.
“The world’s appetite for mobile phones has exceeded even the most optimistic expectations,” said Ben Wood, Gartner’s mobile phone vice president. He cautioned: “Only the sharpest players will survive.”
