Walkman's Sweet Music

The music phone has the wireless industry humming Wall Street's fast-growth tune.

Sony Ericsson blew by analysts' projections Wednesday, saying it sold 19.8 million phones in the third quarter. That's more than 2 million above most estimates. Strong demand for models like the Walkman music phone helped boost Sony Ericsson's sales and profits in the third quarter.

The joint venture of Sony (SNE) and Ericsson (ERIC) posted third-quarter net income of $374 million, nearly three times the year-ago level. Sales rose 42% from a year ago to $3.65 billion.

The strong performance also confirmed to some observers that music is the latet driver of cell-phone sales growth momentum.

"Music will have a disproportionately large impact on phone sales," says Charter Equity Research analyst Ed Snyder, who predicted two years ago that music phones would be a big hit.

"Sony Ericsson is sufficiently far ahead in music phones that serious competition isn't likely to appear until Motorola's (MOT) KRZR ships in large volumes, probably not until early 2007," Snyder writes in a note Wednesday.

But once Motorola gets its music act together, warns Snyder, look out Nokia (NOK).

"We see nothing competitive from Nokia or Samsung in the near-term, leaving the field to the Walkman phones," he writes. A successful music phone "will enable Motorola to further narrow the market share gap with Nokia."

Sony Ericsson is the first of the mobile phone makers to report third-quarter results, so not all the numbers are in. But it seems possible that the company gained enough marketshare to leapfrog LG and take the No. 4 spot in the industry.

There were 780 million cell phones sold last year, and this year's total could hit 1 billion, as new markets open and more compelling handsets are introduced.

Ericsson shares rose $2.16 to $37.72, Nokia was up 38 cents to $20.20, and Motorola fell a nickel to $25.17 in midday trading Wednesday.

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