Extra! Korea

January 10, 2010

Knowing it must adapt, LG will use Google’s Android operating system in its smartphones

Filed under: economics, technology — extrakorea @ 12:51 pm

LG Electronics is doing very well as a TV manufacturer these days, having displaced Sony as the number two producer and recently unveiling the world’s thinnest TV. But the electronics giant knows that it can easily be left behind if it does adapt, and quickly. Sony is planning to take second place back. More importantly, the product lines that are likely to be popular in the future, smartphones, smart TVs. and solar cells, are ones that LG is currently not strong in.

He [LG Electronics CEO Nam Yong] said the company would not be able to survive after three to five years if it fails to become a major player in those fast-growing market segments.

“There is a sense of crisis (at LG) that we may be left behind in the smartphone race should we be ill-prepared for the market this year,” he said in a meeting with reporters yesterday. Nam is in Las Vegas to attend the Consumer Electronics Show, the world’s biggest tech trade fair.

He expected smartphones to replace mid-end feature phones, LG’s stronghold. “There will be either smartphones or low-tier handsets in the future … Feature phones, in which we have had strength so far, may lose ground over smarpthones,” he said.

His remarks underline challenges facing Korean manufacturing giants, which are weak in software and content, key to smartphones sales. Despite a manufacturing edge, LG, the No.3 handset maker, and second-ranked Samsung are falling behind their smaller rivals Apple, Research In Motion and HTC in the smartphone market.

He noted that the handset industry is shifting from devices to content and software, driven by smartphones, a computer like-device that allows users to surf the internet and download applications from the Web. “We face a number of tasks at a time when a paradigm is shifting.”

LG and Samsung each account for no more than five percent of the world smartphone market. Worse, the iPhone, which was recently allowed into the Korean market, has quickly steamrollered the domestic competition in its own backyard.

To this end, about half of all new LG smartphones will use Google Inc.’s Android operating system. Google recently entered the cell-phone market with the Nexus One, which could change the way the entire industry runs.

Until now customers have been able to purchase cell phones only through mobile service providers. When they switch providers they have to buy a new phone, as phones have built-in locks that enable them to work with only the specified network. Handset subsidies are offered, but they must commit to a contract that requires them to use the service for a certain period. Google is changing all this and is selling its phone itself. The Nexus One has no built-in lock, allowing users to choose whichever service they like.

[ snip ]

This is expected to change the very landscape of the mobile communications industry. The days of mobile operators controlling prices will likely come to an end soon. With customers able to freely choose the cheapest service, telecom companies will see their role shrink to mere suppliers of cellular networks and their profits drop accordingly. As companies like Apple and Google expand into the handset market with their own software, existing handset manufacturers will see their powers diminish as well. In 2009 Samsung and LG Electronics boosted their shares of the global cell phone market to the 30-percent level for the first time and pulled in record earnings. But they account for no more than 5 percent of the world smartphone market. They may be riding high now, but there is no telling when they might be knocked out of the saddle. The only way to survive is to innovate, innovate, and innovate.

1 Comment »

  1. Well, that is a big if isn’t it? I mean Samsung and LG have done exceptionally well doing better with what someone else thought up (cell phones, TVs, washers) Now, they have to actually be in the forefront of technological change if they expect to survive in this game? Big if.

    Comment by douglas — January 11, 2010 @ 7:40 am

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