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Thursday, December 9, 2010

iPhone breaks Samsung, LG monopoly


For more than a decade, Kim Jung Yeon only bought phones from Samsung Electronics Co and LG Electronics Inc, passing on best sellers made by non-Korean companies such as Motorola Inc's Razr. Her loyalty ended with Apple Inc's iPhone.

"The iPhone has a cool design and I love the feel and grip of the phone," said the 37-year-old Web designer in Seoul, who bought the device last year, and enjoys using applications about food recipes. "I don't see any reason why I should return to LG or Samsung phones again if I buy another smartphone."

Samsung and LG, the world's two-largest handset makers after Nokia Oyj, can no longer count on home-field advantage as they play catch up in the fastest-growing segment of the $163 billion global industry. A year after Apple's phone debuted in Korea, LG is reeling from record phone losses while Samsung this week unveiled the Nexus S phone equipped with Google Inc's latest Android operating system to win back customers.

"Korean companies are going to face a tough situation overseas going forward, given how much share they are losing at home," said Han Eui Lim, a consultant at ROA Group Inc in Seoul. "Especially in the case of LG, it's very concerning."

Samsung and LG shares have both underperformed the benchmark Kospi Index this year. Samsung has gained 11 per cent and LG has declined 7.8 per cent in 2010, compared with the index's 16 per cent gain. Apple shares have surged 51 per cent, helping it overtake Microsoft Corp as the world's most valuable technology company.

Fewer carriers
The iPhone, available in Korea only through KT Corp as opposed to all of the nation's three wireless carriers for Samsung and LG, has sold about 1.6 million units since it went on sale in the country in November 2009, according to KT.

South Korea had about 4.52 million users of smartphones -- devices that can be used to surf the Web, and play games and video -- at the end of September, with a quarter of those being the iPhone, according to Nomura Holdings Inc. analyst Stanley Yang.

The iPhone created a "mobile big bang" by changing the way Koreans live and work, according to Digieco, a research division of KT, in a report last month.

Espoo, Finland-based Nokia is the world's largest maker of mobile phones, accounting for 117.5 million of the 417.1 million phones sold worldwide in the third quarter, according to research firm Gartner Inc. Nokia's share of 28 per cent was followed by Samsung's 17 pe rcent and LG's 6.6 per cent. Apple was fourth with 3.2 per cent, Gartner said last month.

Phone software
Among smartphones, handsets using Nokia's Symbian software held marketshare of 37 per cent in the quarter, with Android surging to 26 per cent from 3.5 per cent last year. Apple had 17 per cent, according to Gartner.

Global handset revenue is forecast to be approximately $163 billion this year compared with $154 billion last year, according to Credit Suisse Group AG estimates.

Samsung and LG, which are adopting Google's Android, may have fallen behind in the smartphone market because of their external reliance on software, according to Peter Yu, a Seoul- based analyst at BNP Paribas SA.

"The iPhone and smartphones in general are mostly about software content -- it's more of a cultural product," said Yu, who has a "reduce" rating on LG. "When the iPhone was introduced, the Korean companies were in a state of denial, they underestimated the potential."

Short films
LG replaced its chief executive officer and head of the handset-making division in October after the mobile-phone business posted record losses for two consecutive quarters. Standard & Poor's cut LG's debt-rating outlook to "negative" on Nov. 11, citing the "deteriorating" competitiveness of the main handset business.

"If consumers in Korea choose iPhones because of better usability in the local market, overseas customers will do the same," said Kim Jee Hyun, who wrote "Mobile Innovation," a book about the changes in the Korean mobile-phone industry.

To attract Korean users, KT is sponsoring local film directors including Chung Yoon Chul, to make movies with the device's high-definition video capability.

Park Chan Wook, who won the Grand Prix at the 2004 Cannes Film Festival with "Old Boy," is making a 25-minute film that will hit wide-screen theaters this month.

The Korean companies aren't giving up.

New models
Samsung in June introduced the Galaxy S, equipped with a 4- inch touchscreen that's larger than the iPhone's 3.5-inch display. The Korean company has sold 8 million units of the phone worldwide already, including 1.8 million locally, and the aim is to double the number next year, according to the company.

Samsung is looking to boost sales by developing models using multiple operating systems, including its own Bada software, and by selling its products through a wide range of carriers, said James Chung, a company spokesman.

"In the next two or three years, Samsung's position in smartphones will be quite similar to or better than Apple," said Stan Jung, a Seoul-based analyst at Woori Investment & Securities.

Seoul-based LG introduced the Optimus One in October and sold more than 1 million units of the model as of mid-November, with a goal to sell 10 million globally.

LG added 500 research-and-development staff this year for developing handsets, Chief Financial Officer David Jung said in October. The company plans to introduce a "premium" model next year, he said.

Until then, Kim's loyalty toward the iPhone may deepen with applications that let her find recipes to cook dinner.

"The iPhone's operating system offers so much variety in terms of applications, it seems to me it will take a while for Samsung and LG to catch up," she said.