By Kim Yoo-chul
Staff Reporter
Price cuts by Nokia, which controls 40 percent of the global handset market, are putting bigger pressure on its smaller rivals, including LG Electronics, which has focused on pricey camera and music phones.
According to industry sources, the Finland-based mobile phone manufacturer unexpectedly cut prices by up to 10 percent for some music and multimedia phones in July.
Global mobile phone makers are facing an increasingly fierce battle for a greater market share as the demand for such premium phones shows signs of a slowdown in the world’s two biggest consumer electronics market ― the U.S. and Europe. The U.S. and European economies are suffering from macro economic troubles because of the deepening global credit crunch ignited by the U.S. subprime crisis.
"The latest decision by the world’s top handset manufacturer will pressure us on whether to join the move or not. We are watching the market situation with interest," an LG spokesman said Wednesday.
"If we hesitantly implement the price cut plan with Nokia, then the bold move might hurt our phones’ premium image or drag down the share in the key North American and European markets," the official said, adding LG still needs to strengthen its brand image for better competition with Nokia and Samsung Electronics on the global market.
LG Electronics CEO Nam Yong earlier raised the possibility to cut its handset prices if Nokia does so first. Citing market principles, Nam said price competition was inevitable unless LG created a unique value to differentiate its phones from those of Nokia.
Analysts say the Finland maker has always been tactical with its pricing and the recent price cut comes amid Nokia’s aggressive preparation for its ``SuperNova’’ phone at reasonable prices with integrated music players.
"What seems interesting is that Nokia reduced prices on multimedia phones. The multimedia segment is where LG has been injecting massive capital for marketing to raise its share in key markets, increasing worries over lower profits on our mobile division," a high-ranking LG official said.
Sales of the world’s No. 4 handset maker’s 11 models of touch-based multimedia phones reached the 7 million mark at the end of June for the first time, driven by good performances by its Viewty, Venus, Voyager and Prada multimedia phones. But LG has faced a tough battle in large part due to the successful introduction of Apple’s 3G iPhone.
"Although Nokia’s decision will directly impact Sony-Ericsson due to overlapping phone portfolios, the aggressive pricing by Apple, as well as Nokia will lead to further margin pressures in the longer term on LG," the official said.
Citing such factors, some analysts forecast LG to see operating profits at its handset division to fall around 5 percent this year because of the price cuts.
Gartner, a market research firm, also expects phone sales in the third quarter to be more than the second quarter results.
"Cost-control and putting pressure on supplier pricing are the business norm of operators. Hence, mobile device vendors are experiencing increased pressure on device pricing," the firm said.
In the second quarter, LG sold a 27.7 million phones compared with 24.4 million in the first. The quarterly operating profit margin for its mobile phones was 14.4 percent on a global basis, compared with 13.9 percent in the first quarter.