This column was originally published on RealMoney on July 19 at 1:50 p.m. EDT. It's being republished as a bonus for TheStreet.com readers.
Ahead of upcoming reports from
( MOT) and
, an interesting picture of handset-market performance in the second quarter is emerging: The smaller brands have clearly kept their handset pricing firmer than most analysts expected, but this cost them market share, and it suggests better-than-expected unit sales for the handset giants.
, keeping prices firm translated into market-share losses. LG dropped to No. 5 globally as Sony Ericsson, the joint venture from
( ERICY), surged to fourth.
LG's phone-unit shipments slipped slightly -- from 15.6 million in the first quarter to 15.3 million. This echoes Samsung's performance during the spring quarter -- and much like Samsung, LG kept the line on pricing, choosing to give up market share. The Korean handset vendors may be losing steam in the market-share battle, but they also had better margins than anticipated. LG's phone unit lost only 3 billion won, way below the anticipated 25-40 billion loss in the Korean currency.
Much like Samsung, LG may have bet on some hot autumn models to create a sharp fall bounce -- meaning the spring volume weakness may be transient. This may have handed Motorola and Nokia an unusually soft competitive environment during the second quarter.
The combined phone volumes of Sony Ericsson, Samsung and LG clearly declined from the first quarter to the second, breaking the typical seasonal pattern. There is now good reason to expect Motorola to vault above 50 million units in the second quarter, and Nokia to clear the 80 million-unit hurdle, thus beating the consensus expectations.
But it's also important that the pricing environment seems to have been notably benign. Not one of the top three rivals of Nokia and Motorola have resorted to price aggression. Sony Ericsson, for example, had good volume growth on back of ambitiously priced music phones and 3-megapixel camera models.
This is a very interesting setup for the upcoming results from Motorola (after the bell Wednesday) and Nokia (Thursday morning), but it's also an intriguing segue into the third quarter. The reason for the remarkably confident second-quarter pricing strategies of major brands is that they all believe they hold a winning hand for the second half. All five vendors are feeling cocky, because they are all rolling out brand new, high-priced ranges during this summer: Sony Ericsson's Walkman range, Motorola's Q and other Razr variants, Nokia's E and N Series, LG's Chocolate phones and Samsung's new ultra-thin platform.
It's highly unusual because major launches like these tend to be staggered. New models from two vendors typically go up against somewhat aging rivals from three other vendors. That's how things tend to pan out. In Christmas 2006, we'll witness some real fireworks, with major high-end volume rollouts from all top five brands.
At time of publication, Kuittinen had no positions in the stocks mentioned, 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;
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