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.
Direct AddressThe 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.
Come Tuesday, Wall Street's wireless investors will be watching Motorola closely; the company is due to report second-quarter earnings after the market closes. Analysts expect the company to have sold more than 24 million phones in the quarter. Anything less than that would put the tech giant uncomfortably close to losing its place in the wireless pecking order. Samsung said last week that it shipped 22.7 million phones in the quarter ended in June. Some analysts estimate that the Korean tech shop may have gained a point or two in global market share -- at the expense of both Nokia and Motorola.
cash in on Nokia's unbending devotion to passe blocky phones, posting 67% year-over-year growth in its handset business. But Samsung's star now threatens to outshine Motorola's. The U.S. company's continued missteps haven't helped. First, Motorola arrived late to last year's folding photo-phone holiday buying party. Then it ran out of inventory as sales started to take off. Motorola said in April that those issues were resolved, and executives raised their financial targets for the company's second quarter, which ended in June. Analysts now expect Motorola to post earnings of 18 cents per share on $8.5 billion in sales, according to a Thomson First Call tally. Some people don't expect the handset scrum to be resolved anytime soon. "I think Motorola and Samsung will be in a neck-and-neck battle for quite a while," says Snyder.