Suddenly, Nokia ( NOK) isn't the only cell-phone powerhouse scrambling to fend off a threat from the East. Nokia's struggles in the handset market have been well-chronicled, with the stock plunging to a six-year low on last week's earnings disappointment. But what's more remarkable is the position No. 2 wireless player Motorola ( MOT) finds itself in. Though the company has spent a year shedding its reputation as a serial bungler, it too is looking over its shoulder as two hard-charging Korean rivals close in. As Schaumburg, Ill.-based Motorola prepares to post second-quarter earnings after the market closes Tuesday, the company clings to a narrowing handset-market lead over surging Samsung. The rise of Samsung, the No. 3 handset seller, and South Korean peer LG shows how rough the fray has grown in a market Nokia and Motorola once dominated. "Samsung and LG have made great inroads in the U.S. market at Nokia and Motorola's expense," says Charter Equity analyst Ed Snyder, who rates Motorola a buy. On Friday, Motorola shares fell 78 cents to $15.80 as Wall Street reveled in an impressive second-quarter showing by Samsung.
The rise of the Korean players has defied conventional wisdom. Wireless industry observers have long assumed that big handset players need telecom infrastructure expertise and a wide range of models in every price category in order to thrive. But Samsung, a South Korean electronic conglomerate that also has big stakes in the semiconductor and liquid crystal display businesses, has taken the direct approach to cell-phone success. By loading attractive features like cameras and bright color screens into compact, clam-shaped phones, Samsung has bent fashion to its favor in the lucrative high-priced segment of the handset market. The company's most recent results showed a staggering 13% sequential jump in handset shipments. That gain highlights the company's impressive success in an ever-changing, fast-growing industry. The performance also echoed the gaining momentum of LG and Swedish-Japanese venture Sony Ericsson, both of which have capitalized on shifting design preferences among consumers.