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Share prices, profits slipping in cellphone price war

Samsung Electronics Co led Asian mobile phone shares lower after profit and sales at Motorola Inc, the world's second-largest manufacturer of handsets, missed analysts' estimates.

Shares of Samsung, the world's third-largest mobile-phone maker, slipped 2 percent to its lowest close since July 24 in Seoul.

Seoul-based LG Electronics Inc, Asia's second-largest producer, fell 1.6 percent, its biggest drop in a month.

Motorola suppliers in Asia such as Foxconn International Holdings Ltd also declined.

Motorola, the first among the world's largest handset makers to disclose earnings, stoked concern that producers were sacrificing profits for market share.

Rivals including industry leader Nokia Oyj are cutting prices to compete in emerging markets such as China and India, eroding margins.

"Motorola and Nokia are leaving every handset maker at the low end in the dust at the expense of a price war," said Paul Sagawa, a New York-based analyst with Sanford C Bernstein & Co, who rates Motorola's stock "market perform."

"You're going to have some fairly sharp downward revisions for 2007," he said.

Motorola, based in Schaumburg, Illinois, said late yesterday that fourth-quarter sales and earnings-per-share had fallen short of the company's own forecasts.

The company said it plans to discuss how it will improve profitability when it reports fourth-quarter earnings on Jan. 19.

On Wednesday, Citigroup Inc cut its fourth-quarter operating profit forecast for Suwon, South Korea-based Samsung by 10 percent, partly because of mobile phones.

Samsung spokesman Ken Noh declined to comment on the company's handset earnings ahead of the company's Jan. 12 earnings announcement.

Falling prices are forcing Pantech Co, Korea's third-largest mobile phone maker, to ask creditors to delay debt payments.

In September, Taiwan's BenQ Corp (明基) stopped funding the handset business it acquired from Siemens AG last year, leading the German subsidiary to insolvency.

Shares of Foxconn, the world's biggest contract cell-phone maker, fell as much as 3.4 percent in Hong Kong. BYD Co, a maker of rechargeable lithium-ion batteries used in Motorola phones, dropped as much as 2.6 percent.

"We are very disappointed with our fourth-quarter financial performance," said Motorola CEO Ed Zander.

Sales were US$11.6 billion to US$11.8 billion, less than the company's Oct. 17 forecast of as much as US$12.1 billion and the US$12 billion average of 24 analyst estimates compiled by Bloomberg.

Motorola forecast profit to fall to 13 cents to 16 cents a share, missing analysts' estimates and the company's own projections.

Motorola blamed its latest earnings shortfall on cheap handsets.

Nokia CEO Olli-Pekka Kallasvuo said on Oct. 10 that average selling prices had fallen 9 percent to 93 euros (US$122) in the third-quarter as the company based in Espoo, Finland, tapped emerging markets to boost sales.

Nokia, which reports fourth-quarter results on Jan. 25, was China's top handset seller in the third quarter with a market share of 36.6 percent, ahead of Motorola's 23.3 percent, according to researcher IDC. China is the world's largest mobile market by users.

Motorola faces "a retrenched Nokia that is hell-bent on not losing market share," said Mark Sue, an analyst at RBC Capital Markets in New York, who rates Motorola shares "outperform."

"We're going to have increased competition," he said.
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