Samsung’s Android Dominance Puts Squeeze on HTC and Motorola

Google Inc. (GOOG)’s Android has surged past Apple Inc. (AAPL)’s iPhone to become the biggest smartphone platform, attracting a crowd of phonemakers. Yet Samsung Electronics Co. (005930)’s growing dominance may threaten the software’s success and crimp sales growth for some competitors.

Companies such as HTC Corp. (2498) and Motorola Mobility Holdings Inc. (MMI) risk being squeezed between South Korea’s Samsung and China’s Huawei Technologies Co. HTC, which introduced its HTC One phone this week at the Mobile World Congress in Barcelona, shifted its focus to Android in 2009. Motorola Mobility Holdings Inc. (MMI) also turned to Android to reverse a three-year sales slump.

Nokia Oyj (NOK1F) Chief Executive Officer Stephen Elop, who decided against using Android and instead teamed up with Microsoft Corp. (MSFT)’s Windows Phone platform to revive the Finnish company’s fortunes, watches the crowded Android market with relief.

“There are certain players who are quite strong in Android, others who have become less strong, there’s a balancing going out there,” Elop said in Barcelona. “If we had made a decision to go Android, how would we be feeling right now? I feel much better being in the place where we have a unique and differentiated point of view.”

Photographer: SeongJoon Cho/Bloomberg

Samsung Electronics Co. Galaxy S II smartphones. Close

Samsung Electronics Co. Galaxy S II smartphones.

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Photographer: SeongJoon Cho/Bloomberg

Samsung Electronics Co. Galaxy S II smartphones.

Market Shares

At least a half a dozen different handset makers are jostling for position on Android, which is available free to any manufacturer. Android’s share jumped to 51 percent of all smartphone sales in the fourth quarter from 31 percent a year earlier, according to Gartner Inc. (IT)

Among individual companies, Samsung’s share of the global smartphone market climbed to 22.5 percent in the fourth quarter from 9.4 percent a year earlier and Huawei’s more than doubled to 3.5 percent from 1.4 percent, according to researcher IDC. HTC’s market share dropped to 6.4 percent from 8.6 percent while Motorola fell to 3.3 percent from 4.8 percent.

The strain has started to show in the results of some players.

HTC, based in Taoyuan, Taiwan, in October forecast fourth- quarter sales that trailed analyst estimates after already missing them in the previous period. The maker of Sensation and Desire handsets cut that outlook less than a month later, before forecasting revenue this quarter that also fell below the average estimate.

‘Tough Spot’

It’s a fall from grace for HTC, which briefly was the largest smartphone maker in the U.S. market in the third quarter of last year as consumers waited for the latest version of the iPhone to come out, according to researcher Canalys.

“You’re in a tough spot if you have to compete with Samsung on quality and Huawei on cost,” said Matt Thornton, an analyst at Avian Securities in Boston, who’s come to the wireless show in Spain.

Shares of Suwon, South Korea-based Samsung rose 1.8 percent in Seoul today. HTC climbed 5.1 percent on the Taipei exchange. Motorola was little changed yesterday in New York.

HTC Chief Executive Officer Peter Chou’s retort is that analysts forecasting these sales decline lack sufficient insight into HTC’s product lineup.

“We respect peoples’ opinions, they have an opinion based on what they see, that’s fine, but they don’t know what we’re working on,” Chou said in a Feb. 26 interview in Barcelona. “So there’s always a gap.”

Scale, TV Experience

Samsung, the world’s second-largest handset maker after Apple, said this week that it plans to double sales of smartphones and tablet computers this year with a wider range of its Galaxy-branded devices. In Barcelona, the company is releasing the Galaxy Beam, which it says is the world’s thinnest smartphone and also can double as a video projector.

Samsung has thrived because it can create exciting new touch-screen devices by drawing on the strength and size of its design team that also crafts televisions and other electronics goods, said Tavis McCourt, a Morgan Keegan (3543Q) analyst who’s also attending the show.

At the opposite end of the spectrum, Huawei, China’s largest handset maker, has excelled by selling smartphones cheaper than others, making life difficult for HTC or Motorola to go after the low end.

“Huawei is always going to be able to compete on price, and they have great distribution in India and China,” both key growth markets, McCourt said.

Huawei’s revenue rose 11 percent last year, exceeding $32 billion, William Xu, a board member and president in charge of its enterprise division, said in an interview in Barcelona.

Jha’s Turnaround

Motorola Mobility Chief Executive Officer Sanjay Jha made the decision to focus on Android about four years ago to reverse slumping sales. Helped by the popularity of models like the Motorola Droid and a reinvented version of the Razr, mobile device sales stopped shrinking and last quarter rose 5 percent to $2.5 billion from a year earlier.

In Barcelona, Motorola Mobility has showcased a new Razr variant with MotoCast, software that allows consumers to stream content from a desktop computer to a smartphone.

Google’s $12.5 billion acquisition of Libertyville, Illinois-based Motorola Mobility is nearing completion, and CEO Larry Page told analysts last month that Google won’t favor the handset maker it’s buying. Motorola Mobility Senior Vice President Christy Wyatt said it was too early to say how Google’s clout will change prospects.

‘Going Deeper’

“With more resources, we’ll only focus more intensely on going deeper with Android,” she said yesterday in an interview.

Motorola Mobility has struggled to achieve consistent profitability since being spun off from Motorola Inc. (MMI) in January 2011. It lost $80 million in the fourth quarter, compared with a profit of $80 million a year earlier, and cited the “increased competitive environment” at the time as acting as a brake on sales growth.

Wyatt says targeting business users is an area where Motorola can distinguish itself from Samsung and others, disputing the notion that not all the major Android players can thrive.

“I don’t necessarily think we feel that the smartphone market is saturated to the point that there isn’t room for growth -- and competition is good,” she said. “This year Samsung is doing fantastic, next year we’ll see who’s doing fantastic.”

To contact the reporter on this story: Hugo Miller in Barcelona at hugomiller@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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