It started with the Olympics, when Samsung Electronics became the official sponsor, and Motorola was banned from advertising cell phones during the Games. This advertising blackout was another setback for Motorola.

For years, Motorola used to be the market leader in the highly profitable Chinese mobile-phone market which consists of 583 million cell-phone users. But its market share plummeted from more than 21% in 2006 to an estimated 7.9% in 2008, according to market researcher Gartner, Inc. (NYSE:IT). In contrast, Nokia’s (NYSE:NOK) share has topped 38% of the market, while Samsung is likely to grab 8.3% this year moving into the No. 2 spot.

China is the world’s largest mobile market, and the Chinese are likely to purchase 192 million new devices this year. Motorola’s position was always stronger in China than worldwide, according Aloysius Choong, research manager at market research firm IDC.

So what went wrong? Motorola faces the same problem in China that plagues it elsewhere: its failure to produce a follow up of its highly popular Razr phone. The Chinese market demands the latest models, since big-city consumers replace their phones frequently and put priority on models that are cool-looking as well as reasonably priced. According to Mark McKechnie, telecom equipment analyst with American Technology Research, it was competitors Nokia, Samsung, and even LG that came up with replacements. In contrast, Motorola’s latest models were pricey multimedia phones that didn’t connect with consumers. While Motorola launched a special smartphone for China, the Ming, it did little for its market position. The result: Chinese consumers have soured on the Motorola brand. Chen Xin, a 37-year-old Beijing resident who works for a local info-tech company, once bought five Motorola phones within four years, but now prefers Nokia or Sony Ericsson.

Nokia remains the leader by offering a wide range of models, covering every segment as pointed out by Dave Carini, an analyst in Beijing with Maverick China Research. Its efficiency is one reason its handset operating margins are about 20%, while Motorola barely breaks even.

Motorola is fighting back and landed $431 million in contracts to provide China Mobile (NYSE:HL), the market leader, with second-generation GSM equipment. It is also working with the other two cellular operators, China Unicom (NYSE:CHU) and China Telecom (NYSE:CHA). It is also launching new phones, including an updated and expanded line of its Ming smartphones.

Will it be enough? Time will tell…….