December 2, 2004
Ouch. That's gotta hurt. Motorola (NYSE: MOT ) has crashed into third place in the global mobile handset market behind Samsung.
A study by Gartner (NYSE: IT ) shows that Samsung knocked Motorola out of the No. 2 slot, behind market behemoth Nokia (NYSE: NOK ) , in mobile phone sales in the third quarter. Samsung shipped 22.98 million handsets in the quarter, compared with 22.39 million from Motorola and 51.69 million by Nokia.
But does the market share shift really matter? Booming demand for new mobile phones will make this a great year for all phone makers, regardless of their share of the market. Gartner predicts global sales of 620 million units this year, with 650 million possible if the current momentum holds. At the start of the year, it predicted sales of 580 million.
Besides, Motorola's decline isn't all that surprising. Motorola is repositioning itself on the high-end market, where Samsung has built its success. At the same time, Samsung entered the mass market with cheap phones in growing markets like China. So, it's really been a question of when, not whether, the Korean electronics giant would take second place.
Shifting to the high-end with products like its newfangled, $600 "razr" phone, Motorola is showing a willingness to trade some of its market share for higher average selling prices and profit margins. This may lead to growth in revenue and earnings but a decline in relative market share. As long as the overall demand keeps soaring, the strategy might just pay off. But if market growth takes a turn for the worse -- and Fools shouldn't dismiss that possibility -- Motorola's lower unit volume could start smarting.
Fool contributor Ben McClure doesn't own shares of any companies mentioned in this article.