Why Samsung and LG scare Motorola

Moon Ihlwan
09 May 2008
00:00

As mobile-phone maker Motorola (MOT) struggles to end its downward spiral, Nokia (NOK) isn't the only rival causing problems for America's once-iconic wireless brand. The most immediate threat to Motorola, which saw sales plunge in the first quarter, comes not from Finland but from South Korea. Last year, Samsung Electronics  passed Motolola to become the world's No. 2 player in the cell phone industry (BusinessWeek, 12/26/07).

Now 'it is in real danger of being overtaken' by LG Electronics, according to researcher Strategy Analytics.

Unlike Nokia, the Koreans are even strong on Motorola's home turf. In the U.S., which accounts for 44% of its handset sales, Nokia has been losing ground, shedding its share by nearly two thirds in the last two years (BusinessWeek, 4/24/08).

LG leaps past Sony Ericsson

In contrast, Samsung and LG together sell about the same volume in the U.S. as Motorola. And while Motorola's presence is collapsing outside the U.S., the Korean electronics giants are gaining share in both developed countries and emerging markets, thanks to stylish phones featuring touch-screens and multimedia features.

Indeed, it is not just Motorola that should be worrying about the Koreans. Although there's no doubt Nokia, boasting 40.9% share, will rule the planet's cell phone market for the foreseeable future, Samsung is narrowing the gap with the Finnish company. LG, until a year ago seen as a second-tier vendor, has leapfrogged Sony Ericsson this year to become the world's fourth-largest handset maker. The Koreans are even well positioned to challenge Apple (AAPL) and its iPhone. 'If 2007 was the year of the Europeans,' says a recent Strategy Analytics study, 'then, due to LG and Samsung, 2008 is shaping up to be the year of the Koreans.'

Industry watchers agree the Koreans were the star performers in the first three months of this year. In the first quarter, when the industry grew 14% from a year earlier, LG grew 54%, shipping 24.4 million handsets, while Samsung's sales jumped 33%, to 46.3 million phones. They were the biggest beneficiary from the weakness of Motorola, whose shipments sank 40%, to 27.4 million.

The days of the mega-hit are gone

One reason is the Koreans' capability to bring out a slew of stylish products incorporating latest technologies. Samsung, for example, plans to introduce 30 new multimedia models in the second quarter of this year, several of them featuring large, vibrant touch screens providing localized tactile feedbacks. 'Days of one mega-hit driving sales in markets across the globe are over,' says Michael Min, technology specialist at Seoul-based fund manager Tempis Capital Management. 'No one seems to be doing better than Samsung and LG in working with carriers to bring out products targeting specific segments.'

In the past two years, LG has managed to create buzz in the cell phone industry by launching innovative models that, among other things, beat Apple's iPhone in the race to launch a touch-screen model. In April, the company launched the 'Secret,' using carbon fiber and tempered glass for the first time for a phone, a design meant to preserve the model's sleek style from daily wear and tear.

Apart from its distinct look and feel, the handset also sports a 5 megapixel camera, Movie Maker software enabling the user to create music videos, and a Google (GOOG) package allowing access to the Internet, Gmail, Google Maps and YouTube videos.  (BusinessWeek, 8/29/07).

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