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LG's V10 in US faces rough road ahead: analysts

Following slow domestic sales of the company's V10 smartphone, disappointing third quarter results from its mobile division, and the strain of a competitive market, analysts in South Korea have looked at the challenges facing LG in the near future.

LG Electronics launched its V10 "super phone" in the United States early this month, but the company's image as a premium brand has virtually collapsed, and the company can't shake off the weight of a saturated smartphone market, analysts in Seoul have said.

The V10 ranked 15th in the first week of sales after its release in South Korea, according to preliminary figures for October 8-14, as reported by ATLAS Research & Consulting. The dual-display handset couldn't break into the Top 10 at any time last month.

LG released the V10 on October 8, priced at 799,700 won, and quickly lowered the factory price in South Korea at an aggressive 700,000 won ($615). It was the first time in the country that a premium handset was rolled out in that price range, as most flagship phones at initial launch were priced between 800,000 won and 1 million won.

The price for the iPhone 6 and iPhone 6 Plus, launched much earlier, was then cut by up to 90,000 won ($79), with a 16 GB iPhone 6 priced at around 700,000 won; while the factory price of Samsung's Galaxy S6 was also reduced to 700,000 won, hence LG's price competitiveness having been diluted.

In the United States, T-Mobile is offering the V10 for $599.99, with Verizon pricing it at $672.00, and AT&T at $699.99, or $249.99 with a two-year contract.

The hardball price strategy does not appear to have succeeded. But if it did in fact fail to translate into better sales in South Korea last month, why does the company's top brass believe it will work in the US this month?

Brand Name Game

The danger is LG could follow other Android handset makers like HTC and Sony, which are virtually worthless as premium smartphone brands, according to analysts in Seoul. In just two years, LG's market share is a shadow of its former self. So what happened?

"Actually, it is not the problem of price but LG's brand identity," said Lee Seung-woo, an analyst with IBK Securities. "The V10 will not be another success for LG because [the company's] brand power in the smartphone segment is very hurt."

Lee said that's the reason sales for premium LG smartphones have plummeted over the past couple of years, and that won't change with the V10. "The value of LG's brand is not so high compared with Apple or Samsung."

LG's third quarter results from its mobile division, especially on the premium end, were a disappointment -- albeit, an expected one -- for investors, largely due to heated competition from device makers.

"I told [investors] that LG should realise their real position in the smartphone segment, but LG's management still insists their competitors are Apple and Samsung. LG should position themselves as a substitute to Chinese makers of smartphones."

Smartphone market saturation

Another challenge for the V10 in the United States is that it must compete in a saturated premium-smartphone market.

Recent analysis by research firm Gartner projects that user demand for basic smartphones will outpace the demand for premium handsets by a ratio of two to one over the next four years. "The growth rate of the premium smartphones, especially for the most expensive models, is beginning to saturate in mature markets, as the market is driven by replacements by existing users and fewer new buyers enter the market," Jon Erenson and Roger Sheng wrote in their October 21 forecast overview.

If there is little difference in terms of hardware specs between a quality mid-range Chinese Android smartphone and a premium model, then brand image becomes all the more crucial.

Analysts in Seoul think it is too late for LG to repair the damage and get in the game. "It is a tough environment. I think it is too late to turn the game around for LG, not just on the premium end but in smartphones as a whole. I think they realise it, too," said IT analyst Jonathan Hwang of KDB Daewoo Research.

"The smartphone market itself is going into a saturation phase. We are seeing many growth drivers globally. 4G penetration is up now -- not a lot of replacement demand, so it is not LG's problem right now. It's the market. The market is stagnant right now. It is very difficult to differentiate smartphones these days. The only one that is successful these days is really Apple."

Source: ZDNet.co.kr