The global, mobile handset business is a rough-and-tumble arena that requires players to succeed in a daunting number of areas that include technology, design, manufacturing, distribution, marketing and relationships-most factors obscured by the shipment and market-share numbers provided on this page.
But the numbers here do tell a story.
Shipment numbers reflect a robust, possibly record year for handset sales, while share numbers suggest that gains by the two behemoths of the business-Nokia Corp. and Motorola Inc.-are coming at the expense of even their nearest rivals, never mind the chill they cast over the multitude of second- and third-tier vendors.
The numbers tell us that Motorola is rolling up market share at a rate that must instill fear in its competitors; it has added more than four points in market share in the second quarter from the year-ago quarter. In the same period, Motorola’s arch-rival and market leader Nokia gained only one point. The loss of nearly two points in market share by Samsung Electronics Ltd. in the second quarter from the year-ago quarter reveals the considerable vulnerabilities of the world’s third-largest handset vendor. And the evaporation of more than two-and-a-half points from the “other” category that nourishes countless original equipment manufacturers and original design manufacturers spells “M&A.”
Beyond these numbers lurk even more compelling stories of the vagaries of competition.
Motorola has addressed weaknesses in its portfolio in three areas, according to Chris Ambrosio, director of wireless device strategies at Strategy Analytics, the consultancy that provided the shipment and share numbers. Motorola has answered the burning question of “what follows the Razr” by unveiling a handful of new phones, including one that addresses its dearth of 3G handsets and one that provides aspirational features for emerging markets. And the vendor has spread its new design sensibilities across its portfolio.
Gadgets, however, require well-oiled distribution channels, particularly in markets not dominated by carrier retail channels. In India, where Motorola would love to catch Nokia in volume shipments, the latter continues to dominate.
“Distribution is still one major area Motorola needs to solve, because Nokia is head and shoulders above them in that area,” Ambrosio said. “Nokia has something like 60,000 independent distribution channels they’ve set up themselves in India.”
Ambrosio cited a Nokia executive who offered one striking mantra: “Cool gadgets are king in emerging markets. Distribution is King Kong.”
“That’s true,” the analyst said, “because in India, China and Brazil, the winners aren’t the vendors with the hippest products, the winners are the ones building distribution channels the fastest.”
The numbers presented here also highlight the strengths of Sony Ericsson Mobile Communications L.P., which garnered nearly a half-point of market share while posting strong earnings.
“Sony Ericsson is a good case study of a vendor that realized a few years ago that it wouldn’t have the scope to compete in all product segments in all markets globally,” Ambrosio said. “So they set out to do high-end products very well and make media the core value of our products to drive profit. They didn’t write off the entry-tier markets entirely, so they do have their J-series in low-cost markets, particularly in Asia. When they announce a product, it’s getting into the market when they say it will.” And, Ambrosio added, by focusing on Sony’s consumer electronics brand heritage, the Sony Ericsson partnership has done well with Walkman phones and stands to continue that success with Cybershot camera phones.
Smaller vendors will experience component problems at the end of this year, primarily because they play second fiddle to the larger OEMs in supplier agreements for key components, the analyst said. They may struggle to get 3G products to market.
“I’m including Samsung and LG in that picture,” Ambrosio said. “LG has a lot of cost control and scale issues right now that need to be resolved to drive profitability. They really can’t grow market share until they’ve addressed some of these issues in manufacturing and design reuse.”
Meanwhile, the behemoths probably will make modest acquisitions of intellectual property and small companies to complement their strategies, according to Ambrosio, making the landscape ever more daunting for even their most nimble competitors.
