March 23, 2006
 

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By Eric Zeman

Samsung Surpasses Motorola

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Posted: 01.17.05




According to FinanceGates.com, Samsung Electronics outsold Motorola to become the world’s second largest handset company. Gartner notes that Samsung posted a market share of 13.8 percent, which nudges it past Motorola’s 13.4 percent. “This is a blow to Motorola,” says Gartner analyst Ben Wood.

Though the breakthrough is impressive for Samsung, whose market share stood at a meager 2.7 percent just six years ago, Samsung only bested Motorola by 588,000 in the third quarter. With fourth quarter results not in yet, there’s plenty of room for Motorola to make up the difference during the holiday shopping season and recapture the second spot. With a handful of new handsets, including the MPx and MPx220, Motorola may do just that.

Even with this success and a market cap of $67 billion, a Deutsche Bank analyst downgraded Asia’s largest technology firm for the first time in years over fears of its slimmed profit margins. D.J. Yook of Deutsche Bank cut his recommendation on Samsung to “sell” from “hold.”

“We believe increases in advertising and promotion costs will eat into the company’s handset margins in the fourth quarter,” notes Yook. “We believe intensifying competition and commoditization of high-end handsets will also lead to downward pressure on handset average selling prices going forward. Compared to a year ago, most handset producers have a wide range of high-end models with camera, camcorder, MP3 functions.”

This downgrade was reflected in Samsung shares, which measured a 0.12 percent drop. Samsung’s margins began to erode when it followed Nokia in a price-cutting war raging in the cell phone industry. Samsung also intensified it’s marketing efforts in hopes to create more brand awareness and capture more sales.

Maker of many other technologies, such as memory chips and LCDs, drops in the chip market and falling prices in the LCD market will continue to hurt Samsung’s margins. These near-term negatives are enough to suppress analysts’ 2005 projections for Samsung. Deutsche Bank feels earnings per share will drop by 12 percent and overall earnings to drop 36 percent, compared to 2004.
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