Electronics industry undergoing consolidation

By Kim Yoo-chul

If a company understands and responds well to a new trend in the highly competitive consumer electronics (CE) market, it can grab more bargaining power or at least secure space to remain as a stable runner-up.

It’s needless to say that smartphones changed the landscape of the global technology industry and patterns of daily living. One interesting point is that the global CE market is facing consolidation because barriers between software and hardware continue to blur.

Openness, innovation, eco-systems, speedier execution, technology and manufacturing capabilities are some of the top conditions that divide the industry into winners and losers.

Amid an era of content, almost all CE firms are relying on software firms for use in their gadgets, resulting in the latters gaining ``huge bargaining power.’’ Apple’s iOS software is rapidly becoming an also ran as the software can only be used in Apple products.

Samsung Electronics was an initial latecomer to the smartphone business because it previously underestimated the market impact of iPhones, released in Korea by KT in Nov. 2009.

However, its effective top-down management structure and speedier execution allowed it to introduce its first smartphone less than five months after the iPhone release. Based on strengths in parts production and finished goods, Samsung has advanced considerably, though Apple is better suited to producing innovative items.

Samsung’s bet on forming an alliance with Google has been yielding high returns over the last few years. In the second quarter of this year, the company is expected to have widened the gap between itself and Apple.

Samsung sold 50 million smartphones during the April-June period, while Apple sold 30.5 million, according to market research firms.
The two collectively took more than 80 percent of the profits in the entire global smartphone market last year.

Unlike Samsung, Japanese companies are still struggling. East Asia is the region having global CE powerhouses Samsung, LG, Sony, Toshiba, Panasonic, Huawei of China and Taiwanese leading component makers.

Hopes are slim for major Japanese CE firms to rise again due to high costs, an unfavorable exchange rate and stiff requirements for quality products.

``Without complete changes from top management down, chances are very low that Japanese companies will rise again,’’ said a senior executive from the Korea Display Industry Association (KDIA), by telephone.

Shares of Sony, the representative company of Japan Inc., recently fell to the lowest in 32 years, while the situation is not much different at Sharp and Toshiba.

China’s Huawei Technologies based in Shenzhen is another winner in the world of Web-connected devices because its strategies to sell good-enough products at lower prices resulted in the defeat of rivals Alcatel-Lucent, Ericsson, and Cisco Systems.

Losers

Losers are defined as such for specific reasons. They simply fail to read new market trends. Two good examples are Nokia and Research In Motion (RIM).

Nokia resisted accepting changes. The Finland-based firm believed its Symbian software would remain competitive for a few more years. But no handset majors supported it.

The result was disaster. Nokia is still falling.

Nokia says sales of smartphones dropped 39 percent during the second quarter of this year from a year ago. All regions showed a decline except North America, where sales of its new Windows-based Lumia line offset declines in the falling Symbian devices helped by huge promotions.

Taiwan’s HTC is also losing momentum. Motorola Mobility has been acquired by Google. Motorola is nowhere in the markets. Sony, as well as LG Electronics, are also confirmed as also-rans.

Microsoft (MS) was also delisted from the top-tier league as a software maker attacked by Google and Apple. MS is pinning high hopes on its soon-to-be-released Windows 8 software. ``But a huge impact is very unlikely,’’ said an official from Samsung Electronics.

LG, which previously was a major handset player in feature phones, is continuing its corporate difficulties blamed on now-sacked CEO Nam Yong’s dull response to smartphones; but is preparing a comeback.

``The recovery pace in profit is very slow. Dominated by Samsung and Apple high-end smartphones and a massive attack by Chinese makers including Huawei, LG Electronics is expected to continue its current struggles throughout the year’s end,’’ said Cho Sun-eun, an analyst at Samsung Securities, cutting the brokerage’s target on LG Electronics to 70,000 won.

``Winners will eat more, while losers will be struggling to save their bottom line. Amid consolidations, the situation is getting worse for the runners-up,’’ said Cho.