Will the 'super phone' pull LG from the brink?

Analysts in South Korea have questioned whether releasing yet another premium smartphone will pull LG's mobile division back into the profit zone.
Written by Philip Iglauer, Contributor

LG Electronics will be holding an event in New York City and Seoul on Thursday October 1, to show off its latest flagship Android handset.

Now the company is touting yet another premium smartphone -- which LG's mobile boss Juno Cho earlier this year called a "super phone" -- analysts in South Korea have questioned whether it will return the company's mobile division to profitability.

"Actually in the conference call after the 2Q results an analyst asked those same questions: Why is LG not changing its strategy about premium smartphones? But I personally think LG management has misread the market," said Lee Seung-woo, an analyst with IBK Securities. "The management insists that they are rivals of Samsung and Apple. But LG's brand value has collapsed. Its original plan to be number three in the smartphone area globally has gone now."

LG took a stab at better sales when it launched its G4 smartphone in June globally, but it hasn't lived up to expectations. The company is struggling to hold its own against domestic rival Samsung and American high tech behemoth Apple at the premium end of the market and, at the low-end, isn't fairing any better against Chinese brands Lenovo, Xiaomi and Huawei.

LG's overall operating profit in the second quarter dropped 60 percent year-on-year to 244 billion won ($203 million) in the April-June period, while sales decreased 7.6 percent to 13.9 trillion won ($11.58 billion).

But its mobile communications business, which includes LG smartphones, posted 3.6 trillion won ($3 billion) in revenues in the second quarter, nearly flat from a year earlier. And there, its operating profits nosedived 99.7 percent year-on-year to 200 million won ($166,666). The firm blamed a rise in marketing costs.

Analysts in Seoul said that means the tech company made pennies on the dollar for each smartphone sold. "LG should think about its real position in smartphones. Sticking with premium handsets is no longer a good option for LG," Lee said.

LG said it marked the first time for sales of long-term evolution (LTE) smartphones to hover above 8 million (8.1 million) units in a single quarter. Shipments of smartphones came to 14.1 million units in the second quarter, down 3 percent from a year earlier.

The G4 did markedly badly compared with its predecessor, the G3. According to figures by Jonathan Hwang, a tech analyst with KDB Daewoo Securities, sales of the G3 in the 12 month period from its release in June 2014 to May 2015 was about 13.5 million units, and 4.6 million units in the first four months. However, LG sold only 2.1 million G4s from April to July.

"Regarding [LG's] 'super' smartphone, a.k.a. V10, we don't expect any game changing features. We expect notable change on the hardware side would be the dual-camera feature," Hwang said. "However, we don't think this will be significant enough to change the game around."

LG failed to stand out in the era of LTE, analysts said. South Korea quickly adopted 4G IT infrastructure beginning in 2011 with the highest LTE penetration in the world at over 70 percent, and smartphone usage saw more than 8 in 10 South Koreans carrying one in their pocket.

In 2009, LG sold over 120 million mobile devices and held a global market share of 10.1 percent. But in 2014, it sold 78.4 million units, according to IBK figures.

"LG's market share before the LTE era was very strong but they missed their chance to lead in the premium smartphone market as South Korea quickly adopted 4G beginning in 2011," Lee said. "They missed their chance to make a big jump in smartphones over the past three years or so. And during that time the Chinese makers overtook LG very quickly."

LG's worldwide share of the mobile phone market continues to inch downward. In 2013 it was at 4.8 percent, while in 2014 it atrophied 0.2 percentage points to 4.6 percent. IBK project that LG's market share will shrink an additional 0.5 percentage points to 4.1 percent this year.

Source: ZDNet Korea (zdnet.co.kr)

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