February 12, 2002 8:00 AM PST

Nokia, Samsung thrive in a tough 2001

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In the toughest year ever for mobile phone makers, Nokia and Samsung both gained market share and made money, according to new research.

Finnish phone maker Nokia had a market share of 36 percent in 2001, up from 31 percent in 2000, and held operating margins of 20 percent, according to data Tuesday from research firm Strategy Analytics.

Samsung also managed to gain ground while maintaining profitability in its handset business. The South Korean company raised its market share to 7 percent from 5 percent, according to the study. It had an operating margin of 15 percent, which was up up from about 12 percent in 2000, according to Strategy Analytics' estimates. Samsung does not release operating margins for its mobile phone business.

Most others lost money, including Motorola, which was second in terms of market share, shipping to 15 percent of the global market.

Nokia's results were no surprise considering the strict cost-cutting measures it undertook in 2001. But figures from Samsung, which has cut costs less than rivals Motorola and Ericsson, were unexpected and were helped by a sudden increase in high-end phone sales and more people using the GSM (Global System for Mobile Communications) standard.

Samsung has also focused on converged devices such as its combination PDA-phone, the Samsung 1300.

"Nokia is large enough...They've been able to squeeze every penny out of manufacturing efficiencies and put it back into products," said Christopher Ambrosio, an analyst with Strategy Analytics and author of the report. But Samsung used a more unique strategy, concentrating on fancier, feature-rich phones and leveraging its strength in Korea to advance further in the U.S. and European markets.

"They used profitability at home to scale into the U.S. market," Ambrosio said. But more importantly, Samsung has a high average selling price: $179 per unit.

"Now, everybody's trying to play in the high-margin category," Ambrosio said, predicting that the real battle this year will be between Siemens and Samsung. Siemens, a German company, has a stronghold in Western Europe, but also has a significant lead in China. "That market will be the real ace in the hole," Ambrosio said.

Despite the fact that Nokia and Samsung progressed in terms of market share and profitability last year, Wall Street is still pessimistic about most handset makers. J.P. Morgan analyst Edward F. Snyder is among some who predict a rebound in handset sales in 2002, though others say the market won't recover.

"The industry is over; sell the manufacturers," Philip Townsend, an analyst at Arnhold & S. Bleichroeder, wrote in a research note Monday, in which he gave the stocks of both Nokia and Ericsson a rare "sell" rating.

 

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