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LM Ericsson Telephone (ERIC) reported that its subsidiary Sony Ericsson Mobile Communications posted excellent results for 4Q06, proving that compelling products motivate the consumer to buy. In an almost mirror image report when compared to Motorola (MOT), Ericsson reported sales and unit growth at double the global market growth rate. Most importantly, they have improved their margins.

Shareholders have been rewarded with 144% increase in pre-tax income. On this basis the company believes it has outperformed the market during the quarter, gaining around 1% of market share sequentially, to achieve a global market share of approximately 9% during Q4.

“Our target is to become one of the top three players in the industry, and the momentum we established in 2006 makes this an achievable ambition," said Miles Flint, President of Sony Ericsson.

Leaving aside the iPhone issue which has many features that may be replicated in other formats, the question of consolidation rears its head. If Ericsson develops positive momentum, will Motorola recover and become a more robust competitor? Probably not. Watch for Motorola to stealth abandon certain segments and fight for what they perceive to be key markets.

The tipping point may have already been achieved as Ericsson has increasing margins and strength in Asia Pacific, Latin America and Europe. Motorola has problems in these markets and has experienced adverse geographical product mix.

ERIC-MOT 1-yr chart:

ERIC-MOT 1-yr chart

Source: Ericsson's Growing Emerging Market Success Should Leave Motorola Trailing Behind