South Korean phone makers Samsung and LG enjoyed a stellar start to 2008 but the launch of Apple's much-hyped new iPhone is set to dent their sales and profit margins later this year.
A strong portfolio of phones helped LG Electronics’ sales grow at almost four times the annual industry average in the first quarter, while Samsung Electronics expanded at twice the rate, data from Strategy Analytics showed.
But the Korean companies could hit a speed bump in the coming months as the progressive global rollout of Apple Inc's third-generation (3G) iPhone shaves a few percentage points off their profit margins and crimps sales of their top models, analysts said.
“You don’t need an analyst to tell you that a low subsidised price for the most-anticipated gadget ever is going to move huge amounts of iPhones in the finite number of channels through which they’ll sell,” said Yankee Group analyst John Jackson. "It will hurt the Koreans in key high-end segments."
Rivals Motorola and Sony Ericsson are also expected to face a tough time against the next-generation iPhone, which will sell for as low as $199 when it goes on sale from July 11—half the price of the original model, thanks to heavy operator subsidies.
"Now is the time for Korean makers to trim the fat from cellphone prices—how can their $700-$800 phones compete with the iPhone?" asked Daiwa Securities analyst Jae Lee.
Samsung has four sleek touch-screen phones —the Omnia, the Haptic, the F490 and the Instinct —lined up to take on Apple. LG offers three touch-screen models —the Prada, the Viewty with a five-megapixel camera, and the Voyager.
Frost & Sullivan analyst Daniel Longfield estimates Samsung and LG's iPhone lookalikes could suffer up to a 20 percent fall in sales volumes competing head-to-head with Apple's device.
“If a carrier sells both the iPhone and Samsung or LG's models, you would expect a solid 10-20 percent decline in those model sales,” Longfield said.
Price cuts to combat the new iPhone have already begun from Samsung and LG in the United States. But some analysts feel the threat of the new iPhone may be overstated in the short term.
“The Korean firms have done a good job of reacting urgently to the threat from Apple with their iClones, which offer credible and compelling alternatives to the iPhone,” said Neil Mawston, a London-based analyst with Strategy Analytics.
Any market share loss to Apple by Samsung and LG in the United States this year would also be offset by gains from a weakened Motorola and Sony Ericsson in the rest of the world, said Mawston.
Motorola is seen as the most at risk, due to lack of a credible response to the iPhone and high exposure to the US market where Apple is strongest, while Sony Ericsson will be hurt by its reliance on a relatively narrow portfolio of Walkman music phones that compete directly with iPhone and Apple's iTunes music service.