Posted : 2013-12-27 17:05
Updated : 2013-12-27 17:05

Smartphone market faces transition

Chinese players to challenge Samsung, Apple

By Kim Yoo-chul

Smartphones, which have furthered the growth of technology giants such as Samsung Electronics and Apple, are expected to lose expansion momentum in 2014 because the market is approaching saturation point at a rapid pace, according to experts.

According to the latest estimates from Samsung Display, a display-making unit of Samsung and DisplaySearch, a market research firm, the smartphone market will grow to $43 billion by 2015 from this year's estimated $30 billion, meaning that the business is still growing.

But the market will see radical changes next year because the industry is heading toward a saturation point with more players coming in. Apple of the United States was the first to open up the concept of smartphones and Samsung Electronics was the winner thanks to its huge business scale and cost position.

Now, the competition from low-priced Chinese smartphones is implying that the industry will be realigned again but this time the realignment will be focused on budget models.

Intensifying competition in the market will bring down the overall average selling price (ASP), a key barometer to gauge the profitability of manufacturers, to existing major players.

Usually, when a certain market becomes crowded, a firm that has expanded business size is less affected even in the worst-case scenario as it has much bargaining power to control inventories and pricing when a market gets in trouble.

Samsung reign will continue

Market leader Samsung Electronics is looking safe as the world's smartphone producer, having already realized "economies of scale" by focusing on product innovation, marketing/distribution, ecosystem/content and enterprise solutions.

In a recent Analyst Day in Seoul, Samsung Electronics co-CEO Shin Jong-kyun said its overall goal is to consolidate its leadership in smartphones by becoming the top in tablets, creating new businesses and becoming "the most-beloved company." It's been the biggest vendor in shipments since 2011.

Better product mix-up from premium-, mid, to low-range, the proven capability to inspire aggressive marketing and stronger brand awareness will offset concerns over margin profitability next year as well, according to Samsung officials .

"Samsung is best positioned for the next big thing that will be driven by big data, flexible devices, wearable devices, IoT (internet of things) and convergence. Regarding market opportunities, the company sees strong future growth potential in smartphones as smartphone penetration is still only 21 percent. Emerging markets will drive future growth geographically," said Mark Newman of Sanford Bernstein.

In the third quarter, Samsung's global share in the smartphone market reached 32.1 percent, followed by Apple's 12.1 percent. Samsung's revenue for the July-September period was 36.57 trillion won, up 25 percent from a year earlier.

Samsung's bitter rival Apple was aiming to narrow differences by closely partnering with China Mobile, the world's biggest mobile carrier. Apple will start the sale of its latest iPhones via China Mobile from Jan. 17. China Mobile has 760 million customers.

"It's interesting to see that the two smartphone titans will fiercely compete for the top position in smartphones because Samsung is aiming to sell over 120 million tablets next year, while the Cupertino-based Apple is seeking to improve shares by teaming up with major Chinese carriers," said So Hyun-chul, an analyst at Shinhan Financial.

But LG Electronics will lose more of its share as consumers are buying more Chinese-manufactured phones attracted by better pricing but with competitive hardware specifications amid the industry's new trend, said officials.

LG Electronics is following suit with Samsung by rolling out more advanced models using curved and even flexible display screens. But it's too early for those products to help LG generate profit.

By the third quarter, LG fell to fifth behind Huawei Technologies and Lenovo. "For Huawei Technologies, they have strong ambitions to gain scale in handsets but are suffering from a lack of brand power and decent product design. They will try hard to address such issues, threatening LG Electronics," said a manager at a private equity firm in Korea.

"We expect LG to sell 65 million smartphones next year, an increase of 34 percent from this year, lifting its share to 6 percent," said Kim Rok-ho, an analyst at Hana-Daetoo Securities.

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