Some Win but Most Lose in the Cell Phone Race

The results are in! One of the tech industry's more trusted research companies, Gartner, released its scorecard for cell phone manufacturers in the first quarter of this year in May. The league standings indicate a gradually tightening market; most of the famous phone makers lost or only maintained market share, with the few winners gaining significantly in some instances.

Switching places
Although there weren't too many surprises in Gartner's figures, a big change or two indicated how the future's going to shape up for the industry. After over a decade of worldwide domination as the No. 1 manufacturer, troubled Nokia (NYSE: NOK  ) predictably slipped out of the lead and into second place. That's what it gets for hanging on to a clunky, antiquated operating system (Symbian) as the smartphone wave crested and the Apples (Nasdaq: AAPL  ) of this world took over the market.

Moving into the top spot was the former No. 2, the assertive and hungry Korean conglomerate Samsung. The company seems to be hitting its stride with its broad range of appealing and well-priced handsets; in 1Q it sold nearly 87 million phones and had a market share of almost 21%. The latter figure was a nice increase from the 16% it held in the same period of last year. Nokia, by contrast, unloaded 83 million units and dropped to just under 20%. That represented a stumble from the 25% it boasted in 1Q 2011.

A call from China
No prizes for guessing which company came in third. That's right, it was good old Apple. In terms of phone sales, the company had a typically sterling quarter in the first three months of this year. It sold over 33 million units and had the best increase in market share, more than doubling it on an annual basis to reach almost 8%.

The remaining two market share gainers were both Chinese firms. ZTE seems to be gathering speed with its sales of low-cost phones; its 1Q market share grew fatter, to 4% from the 2.5% of one year ago. Its potential for further share gains might be limited, though, as it expects profitability to shrivel -- such is life for discount manufacturers. It's also got plenty of domestic competition in the form of Huawei, which added one percentage point year on year to land at 1Q 2012's market share of 2.6%.

As with Nokia, both companies realize they need to have a stronger presence on the U.S. market. What might stymie these ambitions is the scrutiny of our government; the House Intelligence Committee has been investigating the two for some time now. The concern is that one or both could provide a wedge for the Chinese to expand their espionage efforts in this nation. Whether justified vigilance or unwarranted paranoia, such examination seems sure to limit their market share for the foreseeable future.

The laggards
Not all Asian phone makers are gaining on the competition. Korea's LG Electronics might be wilting in the competitive heat generated by Samsung, as its share dropped to 3.5% of the global market this past 1Q. One year earlier, that figure stood more than two percentage points higher. Sony (NYSE: SNE  ) , once upon a time a powerful competitor with any product that could be plugged in or powered by a battery, remains a virtual non-presence in mobile. It's not losing market share, but there isn't much to lose -- the company had just under 2% in this and last year's 1Q.

Meanwhile, Taiwanese manufacturer HTC still has a presence on the U.S. market but is slipping on a global basis. Its market share, which has fallen almost half a percentage point to 1.8%, is now below that of Sony.

In the "not a big surprise" category is the former investor darling Research In Motion (Nasdaq: RIMM  ) . Remember the days when the company's BlackBerry was the mobile device for the successful? Well, that was years ago, the equivalent of decades in fast-moving tech time. Today, like Nokia, the firm is struggling hard to survive and stay relevant in the market. It's somewhat impressive, then, that its share didn't drop by all that much, to 2.4% from 1Q 2011's even 3%.

The final big company rounding out the Gartner Top Ten was Motorola Mobility, now a unit of Google (Nasdaq: GOOG  ) . Considering that the tech giant's Android operating system powered more than half of the phones sold during the quarter, it's kind of surprising to learn that Motorola/Google's share of the market dropped to 2% from 2.1% in the same period last year.

Then again, there are an awful lot of Android competitors last year and the ink's barely dry on the regulatory stamp of approval for Google's recent buyout of the company. Once the acquisition has been fully integrated into the Mothership, we can expect it to add to its phone sales numbers and market share.

Consolidation time
The pattern to be discerned here is concentration among the winners, which is creeping higher; collectively, the top three firms out of the 10 (again, Samsung, Nokia, and Apple) inched close to 50% of the market in 1Q. In the same time last year, the top three at the time held just under 47%.

Markets tend to consolidate. This one's competitive and has a lot of players, so that'll probably take some time. Let's keep our eyes on the game and see which big winners emerge.

Will it be Apple? We've got plenty of opinion on the company, and not a little analysis. Our premium report on the stock costs only a few dollars and includes a full year of free updates. This is a better deal than a subsidized iPhone; go ahead and grab "5 Things You Can't Miss About AAPL" at this link.

Fool contributor Eric Volkman owns shares of Nokia. The Motley Fool owns shares of Google and Apple.The Motley Fool has sold shares of Sony short. Motley Fool newsletter services have recommended buying shares of Apple and Google. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure policy.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 26, 2012, at 9:09 PM, infektu wrote:

    You say that RIM's share went from 3% in 1Q 2011 to 2.4%, and that is "somewhat impressive".

    Why do you say then that they are "struggling" to stay relevant? 2.4% is still something, or so you say.

    Or maybe this is "somewhat impressive" compared to those that predicted a sale, the end, etc?

    Just to make a point, I think RIM's quarters ahead are anything but easy, but statements like this that lack logic keep coming up in copy-paste media.

  • Report this Comment On July 27, 2012, at 2:45 AM, TMFVolkman wrote:

    Not sure what you mean by my RIMM statements "lacking logic". Considering the state the company's in, it's notable that its share hasn't eroded much more than a sixth of a percentage point. At the same time, though, everyone knows they're fighting to stay in business.

    I don't write for the "copy-paste media", whatever that is.

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