Goodbye Moto, hello Sony Ericsson?

January 23, 2008: 11:40 AM ET

By Michal Lev-Ram

Last year Samsung overtook Motorola (MOT) as the second-largest phone manufacturer. Now, the flailing Razr-maker risks ceding third place to Sony Ericsson. Ouch.

On Wednesday morning, Motorola released yet another round of disappointing earnings -- profit from continuing operations fell to $111 million from the year-ago $523 million, as handset sales plunged 38 percent. Motorola shares quickly fell and were down more than 17 percent by late morning.

In his first earnings report as acting CEO, Motorola's Greg Brown told analysts that the mobile devices unit "remains challenged." What's more, Brown warned it would likely be into 2009 before Motorola has a "robust and competitive portfolio."

Enter Sony Ericsson, the No. 4 handset manufacturer.

The London-based joint venture between Japan's Sony (SNE) and Sweden's Ericsson (ERIC) hasn't exactly been showing explosive growth, but it has been steadily advancing: Just last week the company announced it had increased its year-over-year handset shipments by 18 percent. And, while Sony Ericsson's profit declined -- fourth quarter 2007 net income was about $541 million, down from $648 million last year -- the drop was due mostly to new, lower-priced handsets in its product portfolio.

Bottom line, if Motorola keeps stumbling and Sony Ericsson marches on, their market positions could soon be reversed. "If Motorola doesn't bring something entirely new by 2009, you will probably see the switch happening by then," says Ping Zhao, a telecom analyst with Credit Sights.

Sony Ericsson's global market share stood at 8.8 percent in the third quarter of 2007, according to technology research firm iSuppli. At the same time, Motorola's market share slid to 12.7 percent (considerably down from its Q4 2006 height of 22.6 percent). If Sony Ericsson's plan to make an aggressive push into the United States is successful, it will likely snag even more market share from Motorola, especially considering its multimedia device lineup -- much of which is not yet available in the United States -- is superior.

Sony Ericsson's new president, Hideki Komiyama, has publicly said his company's target is to become one of the top three players in the industry. At the Consumer Electronics Show in Las Vegas earlier this month, Komiyama said he plans to introduce the widest range yet of Sony Ericsson phones in the United States this year. "This is the year for the U.S. market," Komiyama said in an interview on the show floor in early January.

Sony Ericsson's multimedia phones -- mainly its Cybershot camera phones and Walkman music devices -- are already popular overseas. But because the company makes GSM devices, it has yet to make a dent in the CDMA-heavy U.S. market. The new phones it plans to introduce later this year will be optimized for U.S. networks. The company also said it plans to launch a music phone campaign this summer and push its Cybershot phones in the 2008 holiday season.

Motorola also unveiled several new multimedia devices at CES -- including the video-centric Moto Z10 and the Rokr E8 music phone -- but Credit Sight's Zhao was unimpressed.

"We haven't seen some brand new ideas out of that company for a while," says Zhao. "My opinion is that the company will continue to lose market share through 2008 -- there's no new product to drag them out of not losing market share."

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About This Author
Michal Lev-Ram
Michal Lev-Ram
Writer, Fortune

Based in Silicon Valley, Michal Lev-Ram covers enterprise and mobile technologies for FORTUNE. Prior to joining FORTUNE, she wrote for CNNMoney, Fast Company, Popular Science and other business and technology publications. She was also a staff writer at Business 2.0 and holds a B.A. in journalism from San Francisco State University.

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