IPhone's entry to South Korea to test Samsung, LG

from WSJ on Oct 6

Apple Inc.'s entry in South Korean mobile phone market will likely ramp up price competition, pressuring margins at Samsung Electronics Co. and LG Electronics Co. that are already suffering from weak demand.

The entry of the IPhone in South Korea comes as both Samsung and LG have been feeling the squeeze on their margins from a global slowdown in demand for consumer electronics due to the world-wide recession.


Samsung's margin from its telecommunication division, including handsets, fell to 10% for the second quarter from 11% from a year ealier. LG's margin from the handsets fell to 11% in the quarter, from 14.4% from a year earlier.


" Since Samsung and LG don't have impressive smartphones in the pipeline, it's woule be hard to compete with IPhone," said Oh In-bum, an analyst at Dongbu Securities "IPhone's entry to Korea will have a negative impact on both companies."

Califonia-base Apple is widely expected to start selling its popular IPhone this year, after South Korean government approved last month the sale of the smartphone, which features a touch screan and multimedia capabilities such as web surfing an email.

Apple hasn't signed a deal with any telecom operator in the country and an Apple spokesman declined to comment on when the IPhone is available there. A spokesman from KT Corp., South Korea's largest telecom operator, said the company is in talks with Apple on shipment size and subsidies for the IPhone.

Samsung and LG are latecomers to the smartphone market, a segment that is expected to see shipments grow double-digit percentage this year, compared with an overall decline of sales in regular cellphones.

Globally, Samsung is the world's second-largest handset maker by shipments after Nokia Corp. with 19% of the market, while LG ranks the third, with 11%. But at home, Samsung and LG have a combined 85% of the market.

Samsung and LG have been launching similar touchscreen devices globally to compete with IPhone, since the device's U.S. debut in 2007, but sales haven't taken off partly due to weak branding and the absence of their own mobile operating systems. But they also recognize the segment's potential. Smartphones also fetch higher average selling prices,boosting margins.

Much of the impact on the local vendors are determined by Apple's pricing strategy. It is still unclear how much the IPhones will sell in Korea.

In China, the IPhone will retail for around $700, while in teh U.S it costs around $300. Samsung's smartphones sell for about 600,000won to 900,000 won ($511-$766) in the domestic market, while LG phones retal for around 700,000 won.

LG spokesman Yoon won-ill said the company see "limited impact" from IPhones given weak demand for more expensive smartphones.

At the same time, LG is beefing up its product pipeline to compete.
The company said in September that it will launch it first smartphone powered by Google Inc.'s Android platform in the fourth quarter of this year, starting in European market. It also said it would introduce a minimum of 13 new smartphones over the next 16 months that use Microsoft COrp.'s Window Mobile operating system to reinforce its standing with the brand.

" At home, demand for smarphones is expected to increase gradually, so [Samsung]is preparing to roll out new smartphone models to meet consumer needs," Samsung said. The company declined to comment specifically on how Apple will impact its business strategy andprofitability.

Apple's IPhone, which launched two years ago, has so far sold more than 26 million units world-wide in more than 80 countries, with its operating system, particularly its Safari Web browse, acknowledged by many to be a major selling point.