Cell Phone Price Wars, Slowdown Coming?

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Bad news for handset makers. Price wars at the holidays appear to have eroded margins at Motorola. It cut its fourth quarter sales forecast by between $300 million to $500 million. It would appear that it cut prices on its popular RAZR model to compete with products from Nokia.

The cold that Motorola caught could be a flu for Nokia. Reuter reports that: "It is clear — the price competition has been brutal. I believe it has certainly impacted also Nokia," said analyst Jari Honko from eQ Bank. Credit Suisse cut its rating on Nokia to "neutral" from "outperform" after Motorola’s news.

Samsung and several industry groups expect 2007 handset sales to rise only about 10% over 2006. That is compared to a 20% plus growth rate in each of the last four years.

That means that the price war come in the teeth of a slowing market. Not good.

The fall-out could go beyond Nokia and Motorola to other handset companies like Sony-Ericsson and Samsung. Qualcomm and Texas Instruments could find chip unit total flattening as handset companies seek bette prices to offset eroding margins.

2007 could be ugly in the mobile industries.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.