By Kim Yoo-chul
Staff Reporter
South Korean handset makers are rushing to India, China and other emerging markets to offset slowing sales in developed markets.
Emerging markets are more important for Samsung and LG Electronics ― the world's No. 2 and No. 5 handset makers, respectively ― as these still have strong growth potential unlike the continued slowdown in Western Europe and North America, analysts say.
Handset sales in emerging markets surpassed those in developed markets in 2005, and last year 63 percent of phone sales were in them, according to the data from Strategy Analytics.
"With the financial crisis having a direct impact on sales in Europe, emerging markets in general have so far proved to be resilient to a slowdown in the mobile arena. China, India, Indonesia and some African countries have signs of further growth," a market research firm IDC said.
Such a comment seem to be making sense according to third quarter earnings by the world's top five handset vendors.
Samsung Electronics, which shipped a quarterly record of 52 million handsets, has boosted its phone sales by 6.1 million over the July-September period thanks to increased shipments to emerging markets. By maintaining a 60:40 portion in emerging and developed markets, Samsung plans to achieve this year's sales target of 200 million.
"We will be more aggressive in emerging markets in the fourth quarter as we are now tasked to sell some 56 million for this year's target to maintain a double-digit operating margin," a Samsung spokesman said.
Samsung plans to introduce the E1110 model to the mass market. The company is also spurring its lower-cost, "candy-bar" models such as a $130 priced popular E250 and similar tagged B130 and C260 phones in emerging markets, while increasing distribution channels for Africa, Central America, Southern and Middle Eastern Asia, India and China.
"The important fourth quarter, which includes the crucial holiday shopping season, is also forecast to be lackluster, deepening the gloom for Samsung's hopes for a sales upswing in pricey models. Emerging markets could be a short-term answer," according to the spokesman, anticipating a price war in high-end models between bigger players.
"Samsung will start operating a plant in Vietnam from early next year as planned regardless of the economic situation. Cost cuts and supplying phones in selected developing countries are our top priorities," said Chu Woo-sik, head of its investor relations team.
The situation is truly challenging for LG Electronics. LG shipped 23 million handsets, down 17 percent, suffering from sluggish sales in most regions, especially in China and India. Volume was down by 4.7 million.
LG's chief financial officer Jung Do-hyun admitted the company's failure in emerging markets and added it will massively introduce platform-based lower phones there from the first half of next year.
According to LG sources, the company has launched a special task force to review the possibility to expand outsourcing channels with Taiwanese manufacturers, capitalizing on low-end phones. Ahn Seung-kwon, the head of LG's mobile business, is now on a rare trip to some Asian countries to sound things out.
But industry watchers and analysts say LG will experience "tough times" over the next few years for a better position in emerging markets as the company has just started to build up distribution channels, there.
"With the success of Chocolate and impressive performances of touch-screen and messaging phones, LG made some achievements in its brand image. But still, I doubt LG phones will work in emerging markets," said an LG insider.
"Just like Chocolate, LG should introduce a killer item for emerging markets, though huge marketing expenses will burden the company," according to the insider, citing weaker distribution and sales networks.
Like the South Korean duos, the industry leader Nokia ― which has the strongest position in emerging markets, holding more than half of the market in Africa and in many large Asian countries ― plans to increase its low-end volume as developed markets and the high-end phones are under pressure.
The world's No. 4 Sony-Ericsson is largely dependent on developed markets sales, making it more vulnerable to slipping demand for high-end devices in mature markets. The No. 3 Motorola has seen its market share collapse as it failed to get a share in emerging markets for further growth.