Handset Pie Cuts A Bit More Evenly
By Mike Masnick, Thu Jul 29 23:15:00 GMT 2004

Second-quarter mobile phone shipment numbers are out, and while there are few major surprises, the numbers indicate that the market is becoming more competitive.

IDC released its Q2 mobile phone sales numbers today, and they show that competition is taking a toll on some of the leaders. Compared to the numbers from Q1, it's easy to see that sales aren't quite as bunched up at the top of the list any more, and are starting to get spread a little more evenly.

Market share is always a tricky number to analyze, because it's a representation of how a company is doing relative to others in the industry, not necessarily how they're doing on an absolute scale. Nokia's recent troubles are well documented, but tracking earnings is always going to be more important than market share. Growing market share when you're already leading the market by a large margin is always quite difficult. Nokia sold more handsets, by far, than anyone else, but (once again) its growth rate was a bit slower than some more aggressive competitors. Based on the last earnings report, though, this was to be expected.

In second place, however, Motorola looks to be a much bigger disappointment. Motorola has been getting a lot of good press lately, now that it's in the Zander era, but it didn't seem to translate into sales. Motorola announced a ton of new phones this week, so perhaps all the talk is building up towards future growth, but for Q2 Motorola sold fewer handsets than in Q1, joining Nokia in losing market share. Motorola, however, responds by saying this is exactly how it expected things to go, noting (as above) that market share is not an indication of absolute success, and by changing its strategy to focus on higher-end phones, Motorola knows it will sell fewer handsets, but will make more revenue and margin on each one. It's a risky strategy that relies on consumer tastes tending towards those more expensive phones -- something you can't always count on in a highly competitive market.

Also showing up with disappointing results, Siemens sold fewer units than in Q1, lost its sole hold on the number four spot on the list and even saw its average selling price drop as it needed to compete with cheaper phones from other vendors.

The good news mostly comes out of Asia. Samsung continued its assault on the top spot in the market, rapidly approaching number two Motorola. Just like Motorola, Samsung has a number of new phones about to hit the market, and many expect Samsung will find itself comfortably in the second spot before long. As Sony Ericsson noted in its latest earnings, things are going well there too, as it increased sales and market share, effectively drawing even with Siemens for the quarter. Thanks to that tie, LG pushed its way onto the list in the number five spot, with a strong quarterly increase in sales.

The view for the overall handset market remains strong. The higher than expected shipments has meant that some analysts are raising their estimates for 2004 handset sales. That's good news for everyone. However, question marks remain. Samsung, Sony Ericsson and LG all appear to be heading in the right direction, but everybody will be watching Nokia, Motorola and Siemens closely. The more evenly split market bodes well for the aggressive competitors who have realized all along that the strategy needs to be to steal market share in more mature markets, while pursuing additional new markets around the globe. Motorola keeps saying it's becoming aggressive, but sales will tell the full story over the next few quarters as its new phones hit the market. Nokia's quarter shows the bleeding has slowed, but it needs to be stopped and things need to be turned around. Either way, the increasingly competitive market will force these companies to push themselves. Resting on their laurels is no longer an option.