Sony Ericsson, Samsung Show Strong Sales

But profit margins are getting pinched as handset makers fight for market share.
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Price cuts are keeping cell-phone sales growth on track, but profits are taking a beating.

Second-quarter updates from

Samsung

and

Sony Ericsson

show no let-up in wireless handset demand, as industry giants

Nokia

(NOK) - Get Report

and

Motorola

(MOT)

continue to lower prices to gain market share.

South Korea's Samsung, the No. 3 cell-phone maker, says it sold 24.4 million units in the quarter ended in June. That's flat with the prior period and up from the 22.7 million phones sold in the year-ago quarter. And Sony Ericsson -- a joint venture of

Sony

(SNE) - Get Report

and

Ericsson

(ERICY)

-- posted second-quarter sales of 11.7 million units, up 11% from the same period last year.

But both companies took a hit on the bottom line as rising costs and industry pricing pressure helped to narrow profit margins.

"Obviously, Sony Ericsson gained market share and Samsung lost it," says Moors & Cabot Capital Markets analyst Matt Hoffman. Overall, says Hoffman, "unit numbers were healthy this quarter, but pricing has been competitive." Hoffman has a buy rating on Motorola and Ericsson and a hold on Nokia. His firm has done no underwriting for these companies.

The early results from two of the smaller players reinforce the better-than-10% growth expectations for the industry this year. Sony Ericsson, in fact, raised its industrywide sales forecast to 720 million units.

The results also confirm observations that consumers are increasingly drawn to new product designs and added features. Sony Ericsson recently introduced a few new models, including a long-awaited Walkman music phone.

Analysts

expect strong results Tuesday from Motorola, largely on the basis of the popularity of its new phones, such as the thin metal Razr.

Motorola shares were down 4 cents to $19.25, while handset king Nokia was down 20 cents to $17.74 Friday.