Motorola, Samsung Set to Battle In Second Half
By Carlo Longino, Tue Aug 17 16:15:00 GMT 2004

Moto says it will maintain its strong growth; Samsung says it will soon overtake the company as the world's second-biggest handset maker. Who to believe?

A Motorola executive said early Tuesday that the company sees the 20 models it plans to launch in the final five months of the year will help it sustain the growth it's seen in the first part of 2004, a day after a Samsung exec said his company will "soon" overtake Motorola as the number-two mobile phone vendor. It would be easy to dismiss the seemingly conflicting statements as hot air, but both execs could be right.

Last month, Motorola's second-quarter earnings showed a 67% increase in handset sales, a 50% jump in unit volume and a 16% increase in average selling prices, and the guidance it gave then essentially echoed what the exec said at a conference in Singapore yesterday. But even with those positive metrics, the company's market share (according to Strategy Analytics) slipped from 16.1% in the first quarter to 15.4% in the second. Motorola, of course, wants to keep the attention on the fact that its second-quarter share was a point and a half higher than at the same point in 2003.

But the company is positioning itself to focus on the high-end market, which is where Samsung has built much of its success -- and it's really been a question of just when, not if, the Korean company would knock Motorola out of second place. Samsung, too, had a strong second quarter, shipping a record number of phones, and its overall market share trend is much more positive than Motorola's. At the end of last year's second quarter, the company held 10.5% of the market, and at the end of this year's first quarter, it had 13.1%. In the second quarter, the figure grew to 14.5%, putting it within a point of its rival.

Market researchers have raised their estimates for full-year sales to well over 600 million units, making the likely scenario that Motorola grows its sales, but lags the market and hands that second spot over to Samsung. One reason to doubt Motorola are the component shortages that plagued the company during last year's vital Christmas shopping season -- a concern reinforced by Nokia's recent admission it couldn't keep up with demand for its 6230 model.

But the most pressing concern is that handset vendors' fortunes aren't solely dependent on their own actions. The handset market is already highly charged and competitive, and all the major manufacturers -- just like Motorola -- are planning to hit the market with a range of new phones towards the end of the year, and other moves, like Nokia's price cuts, can have a major impact. One report says that in China, long a Motorola stronghold, the company lost its top spot to Nokia in June, and again, Samsung is making a move from its number-three spot.

Shifting to high-end devices would indicate that Motorola is willing to cede some market share in exchange for higher average selling prices and profit margins, though the strategy may just be a rationalization of ongoing weakness in its mid-range and low-end portfolio. This may lead to growth in absolute terms -- revenues and earnings -- but a decline in relative terms -- market share. As long as the overall market continues to grow at a torrid pace, and the company has a good grasp of consumer taste, it can be a successful strategy. But should things change, Samsung's unit volume will prove more valuable. Of course, should the market turn away from clamshells, they're both in trouble.