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By Marguerite Reardon, 20 October 2006 09:05

NEWS

Mobile phone makers are on track to ship their billionth handset by the end of 2006 but the record sales aren't translating into big profits for the top manufacturers.

In aggregate, the world's leading mobile-phone makers - Nokia, Motorola, Samsung, Sony Ericsson and LG Electronics - shipped 254.9 million phones in the third quarter of 2006, a 7.9 per cent increase from the previous quarter. Shipments were up about 21 per cent from the third-quarter 2005 results. If the current sales trends continue, the billionth handset will ship by the end of 2006, according to IDC.

Ryan Reith, research analyst for IDC, said: "If sales continue to be strong, they'll surpass our estimates of 998 million handsets shipped in 2006. Any industry shipping one billion of anything, whether it's cell phones or widgets, is significant. And I think the real important thing here is to look at the growth."

Reith said handset shipments have grown every year since the market first developed back in the 1990s. Mobile makers shipped 833.2 million handsets in 2005 and 714 handsets in 2004, according to IDC data.

But while handset shipments are hitting records, the growth is not translating into bigger profits for the top two mobile operators.

Motorola, the number two maker of mobiles in the world, reported handset sales up 39 per cent in the third quarter from a year earlier, to 53.7 million units. Its revenue was also up 17 per cent but profits fell 45 per cent year-over-year.

Nokia, the number one mobile maker, reported it shipped 88.5 million mobile handsets in the third quarter, one-third more than during the same quarter in 2005. Sales in that quarter were up 20 per cent to €10.1bn from €8.4bn a year ago. But Nokia reported its net profit of €845m was down from €881m in the same quarter a year earlier.

One reason, especially in Nokia's case, is that many of its mobiles are being sold at rock-bottom prices into developing markets such as China and India. Nokia strips the phones down to the basic features and sells them for less than €40 apiece. This has forced the overall average selling price on Nokia handsets to about €93 down from €102 in the second quarter of this year.

In an effort to stem the losses, Nokia is pushing its higher-profit margin smart phones and multimedia phones in more-developed markets such as Europe. Motorola is also focusing on more profitable phones. It said during its conference call that it will expand the popular Razr family. The company also expects sales of its smart phone the Motorola Q to grow.

Marguerite Reardon writes for CNET News.com