Samsung Up, Nokia Down

It is hard to imagine that Nokia can make mistakes. The cellphone maker which had a market share of nearly 40% in cellphones has tripped. The company which is now rising fast is Samsung. The contrast was stark as the two companies announced results recently. NYTimes writes:

Samsung recorded $2.7 billion in profit in the first quarter, an increase of 178 percent from the period a year ago and its best quarter ever; sales were up 50 percent. Nokia said that the 2 percent drop in its first-quarter profits, announced last week, could be followed by second-quarter sales that are likely to be “slightly below” the $8.4 billion it recorded in the period last year.

Nokia still has the leading share of the world handset market, manufacturing 35 percent of the 128 million mobile phones sold in the first quarter. But Nokia lost three percentage points of share from the last quarter of 2003, while Samsung, which ranks third by sales volume after Nokia and Motorola, gained ground.

Samsung said on Friday that it expected its market share to rise by almost four percentage points, to 14 percent. Nokia said its goal was still to secure 40 percent of world mobile phone sales.

Most striking, however, is that recent declines in Nokia’s share price mean that Samsung’s market capitalization has now overtaken Nokia’s as the largest for any technology company outside the United States. The shift in part reflects Samsung’s much broader product line, which includes memory chips and flat-screen displays as well as high-end mobile phones, at a time when all those products are fetching high prices.

“Nokia has obviously made some major mistakes,” said Urban Ekelund, an analyst with Redeye, a private research company in Stockholm. “Firstly, they haven’t launched clamshell products, which came to Asia one and a half years ago. And second, they haven’t launched products with good color screens and cameras.”

By contrast, Samsung has been “focusing on high-end products,” Mr. Ekelund said in a telephone interview, while “Nokia has been focusing too much on the low end,” and on emerging economies rather than richer markets like the United States.

Of course, Samsung has other businesses also, but its aggressiveness in the cellphones business has been amazing. From an article in the WSJ:

Samsung — which once excelled at churning out low-cost, me-too designs — is bucking the trend with a combination of technological wizardry and a high-gloss marketing campaign featuring celebrities such as Britney Spears. These moves have turned the Korean company into the world’s No. 1 purveyor of high-end cellphones and the third-largest seller overall.

Samsung’s models command the highest average selling price in the world, $193 each wholesale in the fourth quarter of last year, according to Strategy Analytics, a Newton, Mass., research firm that tracks the industry. By comparison, the average sales price for phones from Finland’s Nokia Corp., the world’s largest cellphone maker, was $154.

That has helped fatten the profit margin of Samsung’s phone business, which stood at 20% in the fourth quarter, close to the 24.68% at Nokia and substantially higher than the 5.46% at No. 2 cellphone maker Motorola Inc. of the U.S.

Samsung’s “strategy of staying laser-focused on targeting the high-end consumers and building its brand image around that niche market has really paid off,” says Sun Chung, a senior analyst at Nomura Securities in Seoul.

One of the keys to Samsung’s success has been its ability to roll out new features faster than rivals. The company, which pioneered the use of color screens in phones, now loads them up with MP3 music players, TV remote controllers and camcorders. It also is making them from more exotic, and expensive, materials; it plans to sell a titanium phone in the U.S. this year.

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Rajesh Jain

An Entrepreneur based in Mumbai, India.