Riding the Second-Tier Phone Surge

Sony Ericsson has not focused on thin phones. Instead, it built its second- and third-quarter success on relatively old-school handset platforms executed with exceptional grace.

For the first time in years, Sony Ericsson and the Korean brands have clearly different, well-defined approaches. Sony Ericsson is focusing on music and photographic quality, while Samsung and LG are focusing on thin phones with a slightly different spin on Motorola's Razr series. Usually this dwarf-brand trio is out of sync. Last spring, Sony Ericsson was gaining traction, and Samsung and LG were losing it. The overall impact on their big two rivals -- Nokia and Motorola -- was close to a wash.

But it now seems that at least in Europe and Asia, all three are now ascendant -- a rare alignment of planets that may throw off third-quarter projections. I don't believe the combined market share of Nokia and Motorola will continue to rise as it has for some quarters.

Future of the Giants

Motorola's new Krzr has only recently debuted in Europe, so the effectiveness of the Korean thin-phone invasion is still unclear.

It will become evident, however, when the new Motorola models go head-to-head against the slinky new Samsung sliders and LG's Chocolate spinoffs over the next two months.

Nokia's long-anticipated thin-phone announcement keeps slipping; the company is now in something of a squeeze in the European and Asian midrange markets. At the moment, the clear and unambiguous brand identity of Sony Ericsson's Walkman platform may be resonating better with consumers than Nokia's more diffuse range of music phones.

A North American renaissance may be beginning for Nokia in the fourth quarter, as the much-anticipated E-62 started recently shipping at Cingular. The N-75 seems to be on the verge of becoming the flagship model for Cingular's imminent W-CDMA Christmas campaign.

Nevertheless, Nokia's winter fortunes will be decided in Europe and Asia -- not in the U.S. market, where its share has slipped to the midteens.

Nokia remains triumphant in China and India, but the second-tier brands have caught fire in the Western European and southeast Asian markets over the past two months. The upcoming phone numbers from LG and Samsung will be very interesting; they might well deliver upside volume surprises similar to Sony Ericsson.

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At time of publication, Kuittinen had no positions in any of the stocks mentioned in this column, although holdings can change at any time.

Tero Kuittinen is a senior product specialist for Nordic Partners, Inc., a pan-Nordic brokerage firm. Although Kuittinen is an employee of Nordic Partners, Inc., the statements above are being made in Kuittinen's personal capacity and are in no way are the statements of Nordic Partners, Inc., nor attributable to the company. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Kuittinen appreciates your feedback; click here to send an email.