Motorola's Double-Edged RAZR Success

This column was originally published on RealMoney on July 21 at 3:46 p.m. EDT.

To forecast Motorola(MOT Quote) in the autumn of 2005, let's talk about Samsung in the autumn of 2003 and what one hit product can mean for a low-double-digit mobile-phone brand.

Back in 2003, Samsung had just consolidated its No. 3 position in the phone market, having elbowed out Siemens (SI Quote) after an evenly matched battle. Samsung's market share at the end of 2003 stood at 10.1% -- a decent, though somewhat precarious position. Then came the E-700, and Samsung was transformed. In six months, the hot clamshell with a luxurious, 65,000-color display helped boost Samsung's market share to 14.8% from 10.1%. The company had other popular models out, but this single model transformed Samsung in major GSM markets, helping add nearly 5 percentage points of global share in just half a year.

The media loved the story, and Samsung was the cover girl of both technology-oriented magazines and business publications, and phone experts began projecting 20% market share. But Samsung's market share peaked in the second quarter of 2004 and has not reached that level again. The market share may have slipped to 13% during the second quarter of 2005.

Samsung has had plenty of follow-up models after the epic success of E-700. Right now the D-500 slider variants are selling well in Europe and Asia, but the company has not been able to match the roaring success of its definitive hit model. It was a sweet, six-month ride for Samsung, but the company has not demonstrated any real market-share momentum after the E-700 began fading in the summer of 2004.

This brings us to Motorola, which launched its own haymaker, RAZR, back in October 2004. Largely because of the success of this model, Motorola's market share has rocketed from 13.4% in that quarter to perhaps 18% in the second quarter of 2005. That's a 5-percentage-point market-share gain mostly because of one hit product. As a matter of fact, that's eerily like the E-700 magic Samsung conjured up nine months earlier.

And that's the problem. A major hit can deliver a 5-point boost to a second-tier phone vendor -- but it creates an extremely difficult transition period once the clock strikes midnight. Nine months happens to be the effective life-span for most phones -- after that they tend to turn into bargain-basement pumpkins. Samsung has been forced to boost its marketing expenses radically to maintain its phone volumes after the E-700 ran out of juice in early 2005. The new sliders are nifty, but they cannot bottle the lightning that made E-700 sizzle in the summer of 2004.