Can South Korean smartphones beat back 'market squeeze'?

The makers of ultra-high-performance smartphones overloaded with flashy specs are getting hammered by touchy feely Apple, rich with "human feeling and a user friendly experience" at the high end, and ever faster and more reliable Chinese handset makers at their rear flank.

This will ultimately mean big players, Samsung and LG Electronics, could be faced with an unwinnable war of attrition over market share and profit margins.

"The main reason for the success of the Galaxy series -- in particular, its SII, SIII and S4 -- was that there were no Chinese manufacturers such as Huawei and Xiaomi," said Lee Seung-woo, an analyst with Industrial Bank of Korea.

"But Samsung's premium has since decreased in relation to these Chinese manufacturers."

Samsung first unveiled its Galaxy SII in February 2011 and perhaps that cool machine-like performance led Korean companies to market dominance, and they have since maintained a dominant market share worldwide.

But is the heyday of Korean smartphone companies over?

"Korean companies are mostly focused on the electronic performance of smartphones -- not UI or UX -- and a user friendly style, in contrast to the Apple iPhone," said Lee Shin-doo, a Seoul National University professor who specialises in display technology.

The role of what UI or UX plays in a digital device is highly debated amongst IT professionals -- indeed, as is their very definition -- but, despite the vagueries of the idea, it could mean all the difference for the future of Korean smartphones.

"Korean companies put their weight on the semiconductor industry, such as really fast apps and processors, particularly Samsung, but [these companies] pretty much ignored the user-friendly, human-feeling experience," Lee Shin-doo said.

Apple, China threat

But now that hold is slipping, as Samsung and LG face competition from Apple on the high-end in the smartphone segment, and from high-quality and inexpensive phones manufactured by a coterie of Chinese companies, such as Huawei, Xiaomi, and Lenovo. The three Chinese companies broke into the "top 5" in terms of worldwide market share in the second quarter of this year, according to the International Data Corporation (IDC).

On July 30, Samsung reported a 7 percent decrease in revenue year over year and profit down 8 percent, squeezed at both the high and low ends by these competitors. LG's 2nd quarter announcement was even gloomier, its April-June operating profit slid 60 percent from a year earlier.

"Samsung's market squeeze is inevitable, so they should delay the further market squeeze by these Chinese manufacturers," said Lee Seung-woo.

"Basically, the smartphone market will no longer see major new innovations.

"Last year, Samsung's brand value dropped vis-a-vis these other Chinese smartphone makers."

Samsung's global market share slipped in the second quarter as well, inching down to 21. 7 percent, with 73.2 million units, a year over year decrease of 2.3 percent, according to IDC.

The combined global market share of Chinese smartphone makers beat out South Korean counterparts in December last year, according to a report by the Federation of Korean Industries.

Nine Chinese handset producers including Huawei, Xiaomi, and Lenovo edged out Samsung and LG by more than a percentage point with 31.3 to 30.1 percent.

But even there, Samsung was tripped up by a supply snafu of the edge models -- low supply to meet larger-than-expected demand for the new curved handset. Older Galaxy models, however, sold briskly thanks to deep discounts and promotions throughout the quarter.

An LG spokesman said the company plans to differentiate by strengthening its brand and offering better after sales service.

Samsung has stated during its conference call for the second quarter that it will secure both sales and profits, and clearly delineate its low to high end brand.

Export-driven Korean economy in smartphone peril

The release of the Galaxy Note 5 and S6 edge plus next week is even more important, broadly speaking, the release might be more important still for the country.

The country's total exports saw a decline in July for the seventh straight month, but whilst total Korean exports slowed, its IT products -- as a share of those exports -- continued to rise.

Korea's IT exports amounted to $173.8 billion in 2014, a 2.6 percent increase over the previous year, according to the Ministry of Science ICT and Future Planning, with ICT exports accounting for 30.3 percent of the overall exports, at $573 billion. The Galaxy S6 and the G4, flagship smartphones of Samsung and LG, respectively, led the growth.

A forward-looking strategy for Samsung and LG must include faster machines that also integrate a human touch, according to Lee Shin-doo.

"What Samsung has to do is not only emphasise machine-based and high-performance devices, but [it] also has to put into it a human face. They have to integrate it into their future smartphones," he said.

"Look, young people want something that is not just a toy, but also a friend."

The situation is a little more complicated for LG smartphones. Lee Shin-doo pointed out the crucial fact that LG cannot rely on a semiconductor business the way Samsung can, as well as one other key ingredient that LG is missing.

"It may be very difficult for LG to differentiate its phones from other competing phones. China is developing high performance but inexpensive phones, and Apple phones have an excellent UI/UX experience, emphasising design and an interactive style."