Local cellphone makers face falling market share

Buffeted by falling operating profits and a shrinking market share, domestic cellphone makers Samsung and LG Electronics and the Pantech Group are having a tough time. By contrast, foreign cellphone makers, such as Nokia and Motorola are seeing profits climb. Why? Preoccupied with creating a premium brand image, domestic manufacturers have allowed competitors to steal a march on them in emerging markets. According to Woori Investment Securities, Samsung Electronics’ share of the global mobile phone market in the first quarter of this year dropped 1.1 percentage points from the previous quarter to 12.9 percent. LG Electronics’ market share rose marginally from 6.4 percent to 6.9 percent, but it still saw deficits in its operating profits. Analysts believe that when second quarter results are released later this month, cellphone makers’ performance will not have shown much improvement, and will remain sluggish in the second half of this year. “We estimate that Samsung Electronics’ cell phone sector will post a 7.6 percent operating profit rate in the second quarter,” said Lee Seung-hyuk, an analyst at Woori Investment Securities. “LG Electronics will probably barely break even.” Though exports of mobile phones rose slightly in June, they had fallen for three straight months from March through May. Especially bad was April, when exports were 14.4 percent lower than the previous April. Foreign mobile phone companies, by contrast, are experiencing growth in both market share and operating profits. In the first quarter of last year, the gap between Motorola and Samsung Electronics’ market share was 2.5 percentage points, a figure that has since widened to 7.5 percentage points. Samsung’s operating profits in the cell phone sector were more than double those of Motorola in last year’s first quarter, but this year they were not even half those of its U.S. rival. Analysts say that one reason behind domestic firms’ declining fortunes is that foreign companies like Motorola have got back on their feet and are aggressively pursuing new markets in India and Brazil. On top of that, the stronger value of the won against the dollar has hurt Korean companies’ export competitiveness. Two years ago, Motorola unveiled its slim “Razr” phone. Since then, the “Razr” has taken the global market by storm; last April, Motorola’s chairman Ed Zander announced that the company would be releasing its 50 millionth “Razr” phone in the second quarter of this year. While Korean firms have been focusing on top-end products at top-end prices, Nokia and Motorola have been staking out new markets with low-end, low-cost products. Nokia, the world’s No.1 cellphone maker, enjoys a 60 percent market share in India with phones that cost between $40-$50. According to SK Securities, domestic companies’ exports rose 1.8 percent in the first five months of this year compared to the same period last year. However, the firm predicted that the global mobile phone market would grow 14 percent. The pie is getting bigger, but Korea’s slice is not growing commensurately. Of domestic firms’ exports, almost 69 percent go to the United States, European Union countries, and China. “Korean companies just aren’t effectively targeting swiftly growing new markets like India and Brazil,” said Lee Ji-hoon, an analyst at SK Securities. Despite this, Samsung is continuing to strengthen its strategy of selling premium, high-end products. Just last month, at an information technology exposition in Singapore, Samsung showcased three next-generation premium slim phone models, as part of efforts to upgrade its entire range of phones. And according to Kim Woon-sub, vice president of Samsung, the firm wants to maintain its image as a premium phone maker. LG Electronics, in the meantime, has high hopes for its “chocolate phone” series, which it considers its premium brand. LG has released the chocolate phone in several European countries including Britain, Germany, and Sweden, as well as Asian nations such as Singapore and Thailand. Pantech Group’s future is shrouded in even greater uncertainty. The company underwent restructuring late last year and early this year. The company says it will try to recover by being more selective in its output, and focusing greater attention on the Americas and Japan. by Lee Hee-sung, Hong Joo-yun