Motorola slipped to third place in the handset manufacturer world rankings during Q2 2007 and, according to PMN’s Handset Industry Insight service, the company risks falling to fourth in Q3. Samsung has already surpassed Motorola as the world’s second largest manufacturer by unit shipments, moving 37.4m handsets in Q207, up 48.4% on the same period last year. In contrast, Motorola recorded a 31.6% decline YoY (year-on-year) to 35.5m units.

Now Sony Ericsson is rapidly gaining on the beleaguered US manufacturer, posting a 58.6% YoY jump in handset numbers to 24.9m in Q207.

Fig. 1: QoQ handset industry unit shipments (millions)

PMN’s Handset Industry Insight service also tracks quarter-on-quarter (QoQ) performance across the major manufacturers. Motorola surrended an average of 4.7 percentage points of market share per quarter during the first half of 2007, while Sony Ericsson gained market share at a rate of 0.2 percentage points per quarter during the same period. Should this trend continue in Q307, Motorola would fall to fourth, with just 8.8% of the market, while Sony Ericsson would grow its share to 9.7% and rank third behind Nokia and Samsung.

Fig. 2: QoQ handset industry market share change (percentage points)

Analysis

With the exception of Motorola, all manufacturers recorded both a sequential QoQ and YoY increase in unit shipments. Sony Ericsson saw the highest percentage increase both QoQ (14.2%) and YoY (58.6%) as shipments in Q207 rose to 24.9m. Motorola’s unit shipments declined significantly, dropping 31.6% YoY to 35.5m units. Its poor Q2 performance saw Samsung surpass it as the world’s second largest manufacturer on a unit shipment basis, although Motorola’s Dollar revenues remain slightly higher.

Estimated overall shipment volumes across the industry rose 12.6% YoY to 262.3m units. Even with Motorola’s problems, the benchmark of the ‘big four’ manufacturers expanded their device volumes faster than the rest of the market, posting 16% YoY growth and increasing their overall share of device volumes to 75.8%, 1.8% higher than in the comparable quarter a year ago.

Nokia was the primary beneficiary of Motorola’s market share implosion, recording a 12.9% YoY increase in unit shipments during Q207, compared with a 2.8% YoY increase in Q107. The Finnish manufacturer’s device volumes reached 100.8m in Q207, only the second time in its history it has surpassed the psychologically significant 100m mark (the seasonally strong Q406 period was the only other time this was achieved). Nokia shipped more handsets in Q207 than all 3 of its closest competitors combined.

Nokia is also demonstrating it is capable of competing at both the high- and low-end of the device market. It shipped 13.9m ‘converged’ devices in Q207, representing YoY growth of 54% in this category of advanced products, including 9m N-Series and 2m E-Series handsets. It estimates total industry volumes of converged devices reached 29m in Q207, up 53% YoY from 18.9m in Q206.

Fig. 3: QoQ handset industry market share (percentage)

Outlook

Fig. 3 shows how Motorola’s market share is being squeezed on all sides, with Nokia’s dominance pressuring it from above and growth at Sony Ericsson and Samsung cutting into its share from below. Motorola has already surrendered its No. 2 position in unit shipments – the question now is how much further can it slide?

PMN believes Q307 will mark a new low for Motorola’s market share figures, with little in the company’s product portfolio to suggest it can start competing to recover lost ground in GSM markets.

It should also be noted that Motorola is suffering from strong competition in the US – its key CDMA market – where smaller players like LG are winning orders from Sprint Nextel and Verizon Wireless on the strength of their superior product mix. Fig. 2 shows a correlation between QoQ market share losses at Motorola and an expansion of market share captured by other manufacturers outside the ‘Big 4’ group tracked by PMN. Q406 – the 18 month highpoint for Motorola’s market share at 23% – coincided with the smallest share (19.4%) held by companies outside the ‘Big 4’. Conversely, Q207 – the lowpoint for Motorola at 13.5% – saw smaller manufacturers continuing their QoQ market share gain, which increased to 24.2% – the highest it’s been for 12 months.

PMN notes greater risks to Q307 market share figures for Motorola and Samsung, the two manufacturers with the largest exposure to the US CDMA business, in the wake of the ITC’s ban on importing handsets equipped with Qualcomm’s CDMA chipsets. This action, which resulted from a dispute between Qualcomm and rival chipset manufacturer Broadcom, is likely to impact sales of next generation CDMA products. Manufacturers and operators are collaborating with Qualcomm and Broadcom to find a ‘workaround’ solution, but there the disruption is likely to cause a slowdown in sales of CDMA handsets in the US.

Nokia and Sony Ericsson have an insignificant share of the US CDMA market and are unlikely to suffer any negative results from this situation. They may even benefit from a small uplift as some consumers switch to GSM networks to obtain the latest handsets.

The biggest driver of market share change in the mobile industry continues to be success in developing markets such as India, China, Africa and Latin America. These territories account for almost all of the new subscriber growth in the mobile business and the huge volumes of new customers are now being supported by increasing numbers of replacement handsets from ‘emerging market early adopters’ who bought their first mobile devices 18 – 24 months ago.

Following Motorola’s decision to refocus its handset business on mid- and top-tier products, Nokia remains the only one of the big four manufacturers seriously commited to the high volume, low cost segment in developing countries. PMN expects this to result in further market share gains for the Finnish manufacturer in Q307, especially as its success in emerging markets is now supported by a strong high-end portfolio for developed countries.

Sony Ericsson will also see gains from the continuing expansion of its mid-range portfolio, which is enabling it to target a broader range of customers.

Increased shipments driven by the popularity of Samsung’s Ultra range in GSM markets may be counter-acted by exposure to the US CDMA ban. However, PMN notes bullish comments by Samsung’s management on forward sales and expects modest QoQ market share gains from the South Korean manufacturer.

This article is an extract from PMN’s Handset Industry Insight service, a premium subscription product tracking the quarterly performance of the four largest handset manufacturers (Nokia, Samsung, Motorola and Sony Ericsson) in several areas, including revenues, profits, margins, average selling price, market share and unit shipments.

It is published 4 times a year and is available direct from PMN as a premium digital subscription product, priced at GBP 795 per year or GBP 395 to purchase a single issue. (+ VAT @ 17.5% where applicable). You can order on-line here.