Few gain, many lose, in battle over handset market share

Three of the top six handset vendors in the world lost market share last year, as did the “other” category that captures the multitude of second-tier vendors determined to swim upstream against a strong current.
That current is generated by the momentum that scale and aggressive business models afford: Nokia Corp., Motorola Inc. and Sony Ericsson Mobile Communications L.P.-the world’s number one, two and four vendors by volume-all gained share last year.
Samsung Electronics Co. Ltd., LG Electronics Co. Ltd. and BenQ Mobile all lost share, with BenQ plummeting from the top tier after shuttering European and Latin American businesses and retreating to Taiwan and Asian markets.
Meanwhile, growth in the handset market is forecast to slow this year, though global volumes will top 1 billion for the first time, according to market data released by Gartner Inc., which provided the market share figures.
Gartner forecast that handset sales will reach 1.2 billion. Earlier this week, CIBC World Markets analyst Ittai Kidron raised his own forecast to 1.12 billion for this year, a 14.3-percent increase over 2006 but reflecting slower growth than the 21 percent growth between 2006 and the prior year. Kidron forecast that Nokia and Sony Ericsson would make the greatest gains in volume and share. Motorola, the analyst forecast, would maintain share this year before gaining again in 2008.
Market share gains and losses, in general, show that the mobile handset business has matured and opportunities are narrowing for those who would be handset kings. But market share gains can come at a price, as Motorola’s anemic fourth-quarter earnings reflected.
Brand, scale and engineering talent, of course, will maintain Motorola as a formidable competitor in the market. The “other” category of vastly smaller players, however, lost three-percent market share, dropping to 16.2 percent last year from 19.2 percent in 2005. That means that the top six vendors managed to secure more than 83 percent of all handset sales last year. Perhaps as many as 100 vendors now vie for that 16 percent share.
In 2006, Nokia earned nearly 35 percent of the global market, Motorola 21 percent, Samsung nearly 12 percent, Sony Ericsson 7.4 percent and LG earned 6.3 percent. BenQ sagged to 2.4 percent from the prior year’s nearly 5 percent.
“The handset market is essentially global, with some regional or technological exceptions,” said John Jackson, analyst with M:Metrics. “Consolidation pressures continue to increase. The tier one vendors continue to consolidate their market position. And the tier two vendors are either actively exiting or evaluating alternative business models.”
Mike Burton, financial analyst with ThinkEquity Partners, agrees.
“Will there be more consolidation?” Burton asked rhetorically. “Absolutely. Tier-two vendors have to differentiate or die. If you try to compete with Nokia or Motorola on price, you’re going to get killed.”