Samsung and LG – 2 Korean Giants Hacking Into The Smartphone Market

Posted on November 11, 2010

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Samsung Galaxy S

Great perspective article about Samsung and LG’s efforts in the smartphone market. As with anything in a high growth technology based business, only time will tell, however, this commentator sees both companies as real threats to any smartphone manufacturer.

Samsung’s third quarter results posted a year over year increase of 18 plus percent in handsets and a smartphone total market share growth to 10 percent. LG has yet to release a flagship smartphone and that has hurt them. They lack any real innovation, but give them a bit of time. On the other hand, the Galaxy product by Samsung has done well and should have a similar effect on the tablet market.

If there is any real missed opportunity that these companies experienced, it was not recognizing the sheer growth of the mobile phone handset business and jumping in faster. Samsung has all the resources and R and D to create innovation and bring that innovation to market. LG is not at that level, yet.

LG GT540

Certainly there will be real competition from China on the mid tier handset product and that will effect LG more so than Samsung.

(NYTimes) SEOUL — Whatever shortcomings South Korea’s technology giants could be accused of, underperformance is not among them. Helped by their diverse product lines and improving global brand images, Samsung Electronics and LG Electronics continued to rack up solid earnings in the aftermath of the global financial crisis, seeing operating profit swell 91 percent and 31 percent respectively in 2009.

Widely perceived as imitators a decade ago, they have moved firmly into the realm of industry leadership. Samsung dominates the global markets in memory chips and flat-screen televisions and trails only Nokia in the mobile phone space. LG, meanwhile, nips at Samsung’s heels in televisions and handsets and is the world’s top producer of residential air conditioners. Both have built reputations for innovation in the application of emerging technologies like 3-D displays and organic light-emitting diodes.

But despite the achievements, in recent years a crack has appeared in the success stories of Korea’s powerhouses. As the Internet-enabled, application-rich mobile handsets known as smartphones take the world by storm, the South Korean giants have remained largely on the sidelines. Samsung accounts for one-fifth of the global mobile phone market but less than 5 percent of the smartphone segment and LG even less.

The companies have churned out a range of smartphone offerings, but they have so far failed to strike a chord with consumers like that of the Apple iPhone or Research in Motion’s business-ready Blackberry.

“We did misread the scale and speed of the smartphone boom,” said Chang Ma, vice president of the market strategy team at LG’s Mobile Communications Company.

Given the strength of some of their other business lines, neither company has cause to panic, analysts say, but their anemic smartphone performance indicates vulnerability in one of the world’s fastest-growing businesses — the smartphone market is expected to expand 55 percent this year, according to the research firm IDC, which is based in Framingham, Massachusetts.

It has also prompted soul-searching. LG replaced its chief executive, Nam Yong, in September after its mobile phone division posted a record second-quarter loss. Samsung also saw profits and margins in its mobile business shrink in the second quarter.

Worse, the smartphone battle is increasingly being fought on the firms’ home turf, where they once enjoyed a virtual monopoly. Since 2008, when the Korean government scrapped its requirement that mobile phones sold domestically support the indigenous Wireless Internet Platform Interoperability (W.I.P.I.) standard, foreign devices, and the iPhone in particular, have found a highly receptive local audience. The service provider KT, the exclusive carrier for the iPhone in South Korea, announced in September that it had shipped more than one million of the devices in just nine months, which it said were “transforming the Korean telecom market.” It was a performance that far surpassed what everyone had predicted.

“I’m surprised with how consumers, carriers, and manufacturers in Korea hated W.I.P.I. so much and dumped it at this speed,” said C.K. Lu, a Taipei-based senior analyst with the technology research firm Gartner.

So when it comes to smartphones, what have South Korea’s electronics makers gotten wrong?

Company representatives acknowledge that the sheer scope of the smartphone explosion caught them off guard.

But many analysts and industry watchers have pointed to South Korean mobile producers’ relative weakness in software and services. Samsung and LG devices, which run on a mix of proprietary software and increasingly the Google-developed Android or Microsoft Windows Mobile operating systems, have struggled to match the Blackberry’s e-mail functionality and the iPhone’s user-friendly interface and wealth of add-on applications.

Mr. Lu said the companies had made a series of software missteps, including “betting wrongly” with investments to prime their devices for Microsoft’s Windows Mobile 6 operating system, which has basically been rendered obsolete by the recent unveiling of Windows Phone 7. But conversely, he said he did not believe that refining their software was necessarily the best approach and said efforts to develop company-specific mobile phone platforms like Samsung’s “bada” are unlikely to bear fruit.

“They should firstly focus on their expertise on high-tier hardware,” he said. “If you’re already a hardware-centric company, do you have the extra resources to invest in software? Won’t this consume your company’s resources and weaken your hardware competitiveness?”

Indeed, Korea’s handset vendors seem to be concentrating on building more desirable devices, and signs have emerged that the approach is paying off. Samsung’s Android-based Galaxy S, released this year, is a svelte, “candy bar”-style phone with a radiant organic light-emitting diode display that the industry analysis firm Strategy Analytics dubbed the firm’s “first serious assault on the smartphone market.” It was designed and priced to compete directly with the iPhone. Samsung says the device has been introduced in 90 countries, and the company is projecting sales of 10 million units by the end of the year. Its handset sales increased 19 percent in the third quarter, according to the company, with its flagship smartphones “the primary drivers of continued sales growth.”

LG, meanwhile, is pinning its hopes on the new Optimus One, which Mr. Ma says represents “a more affordable and accessible” alternative to the likes of the iPhone and Galaxy S. The Optimus One is powered by the latest version of Android and stacked with user-friendly touches like a choose-your-own color scheme and application recommendation service. About 200,000 units of the phone were sold in South Korea in the three weeks after its September debut. LG plans to roll the device out to 90 countries and is also confident it will move 10 million units worldwide.

Only time will tell whether the companies’ new device lines represent a long-term victory — as Mr. Lu of Gartner pointed out, they not only face competition from Apple and Research In Motion at the premium end of the market but will be increasingly squeezed by emerging Chinese brands like ZTE and Huawei in the middle tier. But at the very least they have sent strong signals that they are back in the game.

Samsung seems determined to challenge Apple on more fronts, recently introducing a tablet PC, the Galaxy Tab, that is clearly meant to present a compelling alternative to the Apple iPad. LG says the firm is devoting “enormous energy and resources” — including 30 percent of its research and development budget — to securing a leading position in the smartphone market, and plans to introduce a tablet of its own in early 2011.

The latest products from LG and Samsung stand in clear contrast to Apple’s self-developed, closed-shop approach; LG’s Optimus is heavily weighted toward popular Google mobile services like Google Maps, while the Galaxy Tab comes with a variety of third-party applications including Facebook and the Amazon Kindle e-reader application preinstalled. Korean mobile makers seem to have realized that if they are going to take the smartphone market by storm, they will not be able to do it alone.

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