LG Electronics Inc. (KRX:066570) was the first to develop what many consider the first modern-day smartphone – LG Prada in 2006. After the release, it was widely reported that Apple Inc. (NASDAQ:AAPL) had used the similar design to create the first iPhone. Since then, LG has been a dark horse in the global smartphone market and has competed with Taiwanese based HTC Corp (TPE:2498) and Sony Corp (ADR) (NYSE:SNE) to increase its presence among consumers all over the world.
Now, the company’s efforts are finally paying off as it has reached third spot in earnings from mobile phone sales in Q1 2014, according to Strategy analytics. Despite the distinction, its US$3.8 billion earnings from mobile phone sales still looks pale in comparison to Apple and Samsung Electronics Co.Ltd. (KRX:005935), which earned a total of US$26 billion and US$23 billion, respectively, during the same quarter from mobile phone sales. The launch of the latest flagship model the LG G3 will provide a further boost for LG and is likely to fuel the competition with compatriot Samsung. Besides, other Android OEMs are also intensifying the competition by releasing their high-end products, such as the HTC One M8, Samsung Galaxy S5 and Sony Xperia Z2.
LG Is Still Lagging Behind In Smartphone Market Share
By the number of device shipments in Q1 2014, LG was the fourth largest mobile phone vendor with 16.4 million device shipments that helped the company to capture 4% share of the global mobile phone market. In the smartphone segment however, it lags behind Chinese firms Huawei Technology Co Ltd (SHE:002502) and Lenovo Group Limited (ADR) (OTCMKTS:LNVGY), which had a market share of 4.7% each. Although LG slipped by one place compared to the same quarter last year, none of the OEMs show a sizeable gain in Q1 2014, therefore, the position is still open for grabs among all OEM’s. In Q1 2014, Samsung has let the mobile market with 27.2% share, which is almost seven times more than LG’s.
The low market share of LG is due to a lack of diversification among its range of smartphones. Despite developing the subsidised Nexus range of smartphones for Google Inc (NASDAQ:GOOGL), the company failed to capitalise on its expertise to create more smartphones for the entry and mid level segment in several key emerging markets. If LG is keen on retaining the third place for 2014, it must first overcome its Chinese rivals Lenovo, ZTE and Huawei.
By targeting African and Latin American markets, the Chinese firms are increasing their footprint globally. Lenovo has also acquired Motorola for US$ 2.91 billion in January this year from Google. Both companies are expected to ship a combined total of almost 100 million smartphones in 2014, thanks to Motorola’s range of budget smartphones, that has shaken up the global smartphone industry. It also gives Lenovo an entry into the western smartphone market, and is bound to affect LG’s growth prospects in the long-term.
The LG G3 May Be The Best Android Phone In The World
Sales of higher end models have allowed LG to generate high profits. The new LG G3 is the most impressive smartphone in LG’s line-up of flagship smartphones. The device boasts a stunning quad-hd panel with 2560 x 1440 resolution. It also features a 2.5 GHZ Qualcomm Snapdragon 801 chip, and 2 GB of RAM in the 16 GB storage variant. The company’s dominance in its high quality displays is clearly apparent, Apple has reportedly selected LG over Samsung as one of the main display component suppliers for the iPhone 6. The LG G3 has one of the highest pixel density of 534 ppi, beating the S5 that has a PPI of 430. The previous LG G2 model was a huge success in the U.S and allowed LG to grab the third place in the market.
The display factor presents an opportunity for the company to use its skill in lower and mid range smartphone models. Unlike Samsung, LG has earned a reputation as a keen innovator. It also has plans to enter the smartwatch market in 2014, with the launch of the LG G Watch. This will give an opportunity for LG to compete with Samsung and others in a market, which is poised to become worth $100 billion by 2020.
What New Steps Will The Company Take?
To move up in the globally competitive smartphone market, LG will need to do more than flaunting its high-end products. The saturating high-end smartphone market and declining ASP (Average Selling Price) of smartphone are pushing companies to look beyond hardware upgrades and companies will need new strategies to stay relevant.
At the moment, the best possible option for LG is to develop a smartphone powered by Windows Phone 8.1 OS. Microsoft Corporation (NASDAQ:MSFT) has already allowed smartphone OEM’s to use the OS free of charge, and LG may use the OS to create high-end WP products. In next five years, Windows Phone OS is estimated to record highest growth of 28%. Another area of future interest is the Palm OS, which LG has deployed in its range of smart TVs, similar to Samsung’s Tizen OS.
To stay content in the list of top three global smartphone players by overcoming powerful Chinese rivals, LG will need more than fancy features and revolutionary displays. The average ASP of a smartphone will decline to US$267 by 2018, and the current battleground is focused on budget smartphones. If LG can create a low-cost smartphone similar to Nexus and Moto G, the Chinese firms will really have something to worry about.