LG Goes Low-End in Mobile Market
By Kim Yoo-chul
LG Electronics is changing its strategy in the mobile business to less-pricey and low-end handsets.
The world's No. 4 phone manufacturer will sell half of its products in emerging markets through the aggressive introduction of phones priced at $100-$150, LG Electronics Chief Financial Officer Jung Do-hyun said Wednesday.
"We will settle for a single-digit profit margin in the low-end market by 2011," Jung said, adding his company will expand outsourcing channels to help cut costs and maintain flexibility for the rapidly changing emerging markets.
LG officials say its key North American and European markets accounted for 45 percent and 11 percent of phone sales, respectively, while Central & South American, Middle Eastern and Asian markets made up 22 percent and 16 percent, respectively, in addition to 6 percent in Korea.
The U-turn in its marketing strategy is also attributable to the global economic downturn, analysts and LG officials say.
LG sold 23 million handsets worldwide in the third quarter, including premium models such as Viewty and Secret, compared with 27.7 million in the second quarter.
Its mobile division operating profit margin fell to 11.5 percent in the latest quarter from 14.4 percent in the previous one. LG officials say the slowdown was partly due to passive marketing in emerging markets.
"We failed to increase our shares in rising Asian markets, including India and China," spokesman Park Seung-koo said.
LG has long sought to become the world's No. 3 handset maker after Nokia and Samsung Electronics. But its ranking dropped to fifth as Sony-Ericsson sold 25.7 million handsets during the same period. Struggling Motorola is forecast to keep its current No. 3 position by shipping some 28 million phones.
Citi Group trimmed its target price on LG shares by 6 percent to 148,000 won and cut its net profit estimates.
LG has been showing impressive sales in the saturated North American and European markets on the back of its Chocolate and touch phone brands.
"We have been reluctant to enter low-end phone markets for fear of hurting our brand image. We have changed our minds to realize economies of scale and to tackle falling sales amid global economic woes," Park said. LG expects to ship 100 million handsets this year compared with 80.5 million in 2007.
But LG is widely expected to face a bumpy road as Nokia also plans to tap the low-end phone market in China and India. Samsung Electronics is also set to introduce more such phones next year.
Its closest rival Sony-Ericsson will cut production by 20 percent, reduce costs by $3.9 million and slash 2,000 jobs, according to industry watchers.
"We are weaker than rivals in low-end portfolios in emerging markets. LG is in transition and mulling over whether to go one-step further," said an LG insider, asking not to be identified.