South Korean Mobile Phone Makers Face Stiff Competition

Strategic Insights -

Samsung and LG Electronics, two of the world's leading mobile phone manufacturers, have seen their market share and profit margins decline in recent months. This is largely due to increased competition from Motorola and Nokia, which have managed to regain market share with their stylish new models and lower-priced phones. The Korean companies have failed to establish a significant presence in emerging markets, where growth is rapid and handsets are cheap. As a result, their profits have suffered, with Samsung experiencing a 9 per cent fall in second-quarter revenue from its handset business.

Key Takeaways:

  • Samsung's second-quarter revenue from its handset business fell by 9 per cent compared to the same period last year.
  • LG Electronics cut its forecast for this year's handset shipments by more than 10 per cent after suffering its first operating loss in the handset division.
  • The average selling price of Samsung's handsets fell from $182 to $176 in the second quarter.
  • Motorola increased second-quarter shipments by 41 per cent, selling 5 million units of its high-margin all-metal Razr phone.
  • Nokia lifted its handset volumes by 34 per cent in the second quarter.
  • Analysts say the Korean companies need to enter the lower-end market to cope with the changing environment, but this may hurt their premium brand image.
  • Samsung and LG have to continue increasing spending on research, development, and marketing, making a big improvement in their margins unlikely in the third quarter.

Statistics:

  • 9 per cent: fall in Samsung's second-quarter revenue from its handset business.
  • $182: average selling price of Samsung's handsets in the first quarter.
  • $176: average selling price of Samsung's handsets in the second quarter.
  • 41 per cent: increase in Motorola's second-quarter shipments.
  • 5 million: units of Motorola's Razr phone sold so far this year.
  • 34 per cent: increase in Nokia's handset volumes in the second quarter.
  • 14 per cent: increase in Sony Ericsson's shipments in the second quarter.
  • 10 per cent: cut in LG's forecast for this year's handset shipments.
  • $150: price point at which phone demand is increasing.
  • 720 million: global demand for mobile phones expected this year, according to Samsung.

Sources:

  • "Korean mobile phone makers lose ground to Nokia and Motorola." Reuters.
  • "Samsung, LG bruised by Nokia, Motorola's rise in handsets." Bloomberg.
  • "LG Electronics cut forecast for handset shipments." Korean Times.
  • "Samsung sees no respite for quarterly phone revenues." Reuters.
  • "Motorola leads charge to share with sales boost." Reuters.
  • "LG expects to move into global top three by 2006." Yonhap News Agency.
  • "Samsung and LG facing difficulties in tackling Europe's GSM market." Reuters.
  • "Korean companies need to rethink strategy for low-end market." Korea Times.