Motorola still on the skids

May 28, 2008, 6:48 PM UTC

By Scott Moritz

Motorola’s (MOT) tailspin is looking more like a nose dive as the mobile phone maker’s market share dips more than 50% below its 2006 level.

At this rate, Motorola is on track to fall to the back of the five-player pack this year as its first-quarter phone sales fell to 29.9 million units. The slip gives Motorola a 10.2% share of the total cell phone market, down from 18.4% a year ago, according to a Gartner research report Wednesday.

Motorola’s phone business has tumbled since the Razr phone fell out of fashion in 2006. The company plans to spin off the money-losing business to shareholders sometime next year. And it’s little wonder why. The former top phone maker has seen Nokia (NOK) and Samsung take the No.1 and No.2 spots in the indusry. And Motorola’s time as No.3 seems limited – LG is hot on its heels with 8% of the market, up from 6.2% in the year-ago period.

So far, the new phones Motorola has introduced “were not competitive enough to maintain its place in the market,” says Garnter’s Carolina Milanesi.

Smaller fish, tougher pond

Despite a big fourth quarter, Sony Ericsson also fell, to 5th place with 7.5% of the market in the first quarter, according to Gartner. Part of the drag on Sony Ericsson was a drop in demand for middle-to-higher priced phones in Europe. Gartner says first quarter sales for all phone makers fell 16% below year-ago levels in Europe. This is the first drop in sales Garnter has ever recorded in the past 7 years of tracking the mobile phone market.

Overall, Gartner says the industry is still on track for growth between 10% and 15% this year thanks to strong demand in developing markets. That demand doesn’t completely offset declines in Europe, however, since it’s mostly for lower priced phones. So the higher volume growth will come at a lower total value, says Gartner.

“The value of the market will be lower than we stated in our forecast,” says Gartner’s Milanesi in a press release. “This is because the current economic slowdown and higher fuel costs will force consumers to defer phone purchases in mature markets, while higher food prices will lead to longer replacement cycles in emerging ones.”

So if Motorola had troubles before the spending crunch, imagine how the phone shop will fare now.