Mobile phone sales continue to be hurt by the faltering economy, so vendors are increasingly looking to software and services to lure buyers of new devices.
The challenges continue for Motorola and Sony Ericsson. Motorola, which announced its result on Thursday, sold 14.7 million phones, compared to 19.2 million phones during the fourth quarter last year.
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The drop was expected, and there may now be some light at the end of the tunnel for Motorola. The company has probably hit the bottom of its mobile-phone sales curve and won't go much lower, according to Shaun Collins, analyst at CCS Insight. Whether the company's upward slope is steep enough to carry it through remains to be seen, he said.
Sony Ericsson sales dropped to 14.5 million phones, compared to 22.3 million phones sold in the same period last year. The most recent figures are also a 40 percent drop compared to the last three months of 2008. The company is now the fifth-largest mobile vendor; Motorola ascended to the fourth spot from fifth.
Sony Ericsson suffers from a weak portfolio, especially in the important smartphone sector. Sony Ericsson will also have to solve its boardroom issues, with parent companies Sony and Ericsson having to decide if they want to stay in the family, according to Collins, who doesn't expect them to make a decision before the economic situation becomes more stable.
"What I really would like to see is Sony spending a significant portion of the time on Sony Ericsson the next time it does a big investment presentation, because it would show commitment," said Collins.
The mobile phone market needs five major vendors, according to Collins.
"If anybody exits, it's highly likely that Nokia will benefit more than anybody else, which only makes them bigger, and I'm not sure that is the right thing for the market," said Collins.
At the other end of the spectrum is LG, which was the clear winner during the first quarter and the company that seems to be benefiting most from the challenges that Motorola and Sony Ericsson are having, according to Collins.
LG sold 22.6 million phones, which was the smallest drop for any of the five largest mobile phone vendors compared to the fourth quarter last year, when it sold 25.7 million phones. That means it's now the third-largest vendor by a margin of about 8 million phones.
The key to LG's success is that the company has identified and exploited a couple of market segments -- especially the budget QWERTY and touch market -- in both the United States and Europe, Collins said.
When it comes to touch devices LG has, of course, been inspired by the iPhone, and the Apple device is still the best touch device out there. But the current model is starting to lose some of its luster.
Sales of the 3G iPhone have dropped from 6.9 million units in the third quarter last year to about 3.8 million during the first three months of 2009. It's unclear how much of that is due to users feeling less inclined to buy iPhones specifically or phones in general, according to Richard Webb, directing analyst at market research company Infonetics. But the drop is putting more pressure on the company to bring out new products, he said.