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Soon after Motorola ( MOT) and Samsung signaled serious margin disappointments, Sony Ericsson delivered slamming fourth-quarter phone numbers. It hit the jackpot by nurturing a savvy music strategy. The triumphant progress of the Walkman phone juggernaut is a warning to rivals ranging from Apple ( AAPL) to Nokia ( NOK). SE is no longer a niche player; it is now a real contender to be the lead brand in an important device segment. Music phones were dismissed as a curiosity in 2004. They are now a vitally important part of the handset-upgrade market. The contrasting strategies between Samsung, Motorola and Sony Ericsson could not be more intriguing. SE more or less opted out of chasing two hot trends: pricey thin phones and China/India cheapies. Yet even as Samsung and Motorola hit some serious margin trouble in the fourth quarter of 2006, SE extended its spectacular 2006 run. It's possible that opting out of trends that other top-five vendors are pursuing is a winning formula if you find your own niche to exploit. And it seems like the music phone niche is the one that SE truly understood in a very mature kind of way. SE's volume success during the 2006 fourth quarter was remarkable -- almost 75 million units, up from 51 million a year earlier. This was achieved with the average sales price (ASP) at a stunning $189 -- a niche-specialist ASP with mass-market volumes. Meanwhile, several top phone vendors are locked in an arms race measured in millimeters: Who will get below 10 millimeters first with a mass-market model? While slim handsets proliferate, music phones with solid user interface and content-distribution/management software are anything but common. SE grabbed this ball and ran with it in 2006. Perhaps this happened partly because the music-phone market was widely derided as a burial ground for flops back in 2004. The early models were clunky, and memory was expensive. The iPod seemed invincible. Most phone vendors dialed down R&D of music phones, which did not seem to be a viable mass-market segment. By the start of 2007, it's clear that music phones can indeed be the very core of the Western handset upgrade market.