The competitive landscape for the world’s top five mobile-phone vendors at mid-year has come into clearer focus with second-quarter earnings already reported or expected this week. The plot has thickened perhaps, while not varying much from earlier episodes of this long-running, global industry serial.
Analysts expect that when Nokia Corp. and Motorola Inc. report their second-quarter earnings on Wednesday and Thursday, respectively, that Nokia will offer revenue and earnings in line with expectations while Motorola-perhaps fueled by the competitive fervor that comes with second place-may do better than expected. Samsung Electronics Co. Ltd. last week said that revenue and earnings in its handset business were down significantly and LG Electronics Co. Ltd. is expected to report an even weaker performance when it reports earnings on Thursday.
Typically, these four vendors square off in competitive pairs. Nokia and Motorola, with about 33-percent and 18-percent market share, respectively, in 2005, according to Gartner, are linked by their positions as No. 1 and No. 2, by brand strength and by their global reach and economies of scale. Samsung and LG, both based in South Korea, are linked by geography and, perhaps, ambition. Samsung may aspire to Motorola’s position, but LG is focused solely on achieving parity with Samsung. They were third and fourth in 2005 global market share with 13 percent and 7 percent, respectively.
Meanwhile, Sony Ericsson Mobile Communications L.P., the final entrant in the top five, with 6-percent global market share, stands alone based on its high-tier price points and strategy. It reported last week that earnings doubled from the year-ago quarter, underscoring its possibly unique position in the market: Sony Ericsson emphasizes its brand heritage in consumer electronics, bypasses the largest U.S. carriers other than Cingular Wireless L.L.C. to sell in branded stores or big-box retailers and pursues margins rather than market share.
The news last week was Samsung’s and Sony Ericsson’s financial results. Samsung reported that revenue from mobile-phone sales fell 4.5 percent to $4.2 billion from the year-ago quarter, based on shipments of 26.3 million units, slightly below analysts’ dampened expectations. Operating profit in Samsung’s telecommunications division-the bulk of which is comprised of mobile phones-fell 24 percent from the year-ago quarter to $429 million.
The company blamed its results in part on erosion in average selling prices, which indeed plagues the industry as competition intensifies and as Nokia and Motorola crank up their production of low-cost handsets for emerging markets. Samsung’s ASP dropped to $167 from $171 in the prior quarter. But Samsung said it is banking on market traction for its “Ultra Edition” slim handsets destined first for markets in Southeast Asia later this year.
Samsung is carefully seeking traction in India, but has come late and reluctantly to the low-tier handset battle in emerging markets, apparently fearing further ASP erosion and a wrestling match with behemoths it cannot win.
In contrast, Sony Ericsson, headquartered in London, could be jubilant that its $181 million earnings for the second quarter nearly doubled its earnings from the year-ago quarter, while overall revenue increased more than 40 percent to $2.9 billion and handset volume shipments increased 33 percent to 15.7 million units. Perhaps more importantly than self-congratulations, Sony Ericsson’s results beat analysts’ expectations. Sony Ericsson promptly upped its forecast for global handset shipment volumes by all vendors from 900 million units to 950 million units, closer to a consensus of industry estimates.
Sony Ericsson attributed its improved revenue and shipment volumes to sales of three new Walkman music phones (models W300, W700 and W42S) and an updated W810 model, plus the Cybershot camera phone model K800 and two new FOMA phones for Japanese operator NTT DoCoMo Inc.
Forecasts for LG are bleak, as a survey of analysts by Reuters revealed last week that the vendor is expected to report a 50-percent drop in profits from the year-ago quarter and little prospect of an immediate turn-around in the third quarter just underway. The vendor is banking on the introduction of its Chocolate phone in the U.S. market, where it is being touted (as of last Friday) by Verizon Wireless-which is using high-profile handsets such as the Motorola Q and LG’s Chocolate to lure customers. But Motorola has been steadily dropping the price on its blockbuster Razr handset to cement its own dominant position here, even as rival Nokia has retreated from its joint venture in CDMA technology with Sanyo Corp. that would have given the Finnish vendor a fighting chance in the States.
