The Battle For Market Share
By Carlo Longino, Tue Jan 18 23:45:00 GMT 2005

Sony Ericsson and Motorola both reported strong fourth-quarter sales, while Samsung slowed up -- a development the company says is down to a strategy that should boost first-quarter figures.

Sony Ericsson said Tuesday it turned a net profit of 55 million euros in the fourth quarter, nearly a 30% increase over 2003, on a 40% rise in sales to 2 billion euros, while rival Motorola said its profits jumped up more than 50 percent to $654 million, on sales of $8.84 billion, 27% higher than last year. Contrast these results with those reported by Samsung last week, when the company said falling handset prices helped push profits lower for the first time in six quarters, to 1.8 trillion won ($1.74 billion), from 1.9 trillion a year earlier. Given Samsung's momentum going into the quarter -- the previous quarter was the first time market watchers said it had passed Motorola as the second-biggest handset vendor -- and its strength in high-end phones, its slowdown was a bit surprising.

Samsung says the lower fourth-quarter sales were part of a strategy to grab share in the first quarter, a ploy that's worked the last two years. A spokesman for the company told The Wall Street Journal that Samsung believes holiday shoppers are extremely price-sensitive, and won't be attracted to its pricey models. So it clears out existing inventory in the fourth quarter, then boosts shipments in the first so as to maintain a high average selling price. Samsung says it can avoid having to slash first-quarter prices on unsold inventory this way -- even though its margins were squeezed in the fourth quarter by price cuts to follow those enacted by Nokia.

It's a curious strategy, from many angles. It could make sense that the company expects its rivals to be licking their wounds, so to speak, in the first quarter, so it can pounce then and steal share. But the whole strategy is predicated on the belief that high-priced phones don't sell well in the fourth quarter, something that Sony Ericsson and Motorola's results -- and even Samsung's sales of certain models -- don't bear out.

Motorola saw very strong sales of its expensive, ultra-thin RAZR handset, an Sony Ericsson says its 3G devices and cameraphones sold well, and its average selling price in the quarter increased. Meanwhile, Samsung's D500 model, which features a 1.3 megapixel camera and a number of other advanced features, was a top seller in Europe for Christmas, and the company sold 40,000 units of a five-megapixel model at $1000 each in Korea in December alone. So there's no high-end demand?

Unsurprisingly, Motorola executives say it increased its market share in the quarter, while Sony Ericsson says its held steady. It doesn't sound like Samsung will be surprised if its falls. Samsung is betting on a big first quarter, but the mometum may have already swung back to Motorola, and with a lot of share to be up for grabs in the coming year, Samsung could be on the back foot.

Although some estimates are saying the number of mobile-phone users could hit 2 billion by year's end, most predictions see handset sales growing by 10 percent or less. In 2004, the market grew by around a third, with the final tally being something like 630-670 million, depending on which analyst you like. Toss in Siemens' possible exit from the market with that slowdown, and there could be a lot of movement in the market in terms of share this year.