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  (Source: Reuters)
Device is nearly twice the price of China's top smartphone, the Xiaomi Mi4; iPhone 6 and Galaxy Note 4 loom

On Monday South Korea's LG Electronics, Inc. (KRX:066570)(KRX:066575) will bring its well reviewed international Android flagship device, the LG G3, to China.  The device will retail for CN¥ (yuan) 3,999 (~$650 USD), around the same price as Samsung Electronics Comp., Ltd.'s (KRX:005930)(KRX:005935Galaxy S5 and Apple, Inc.'s (AAPL) iPhone 5S.

I. LG Sees Challenging and Unpredictable Landscape in World's Top Phone Market

The LG G3 is among the most powerful smartphones in the world, with a spec that includes: The LG G3 has been a shot of adrenaline in the veins of the Korean electronics giant's struggling smartphone unit.  After climbing to third place in global smartphone shipments in Q1 2013 (behind Apple and Samsung), China's Lenovo Group, Ltd. (HKG:0992) bumped it to fourth place in Q3 2013.
LG G3
In Q2, with the help of the LG G3, LG solidified its U.S. market share, rising to 11 percent according to numbers from Counterpoint Research.  Those strong U.S. sales drove it to 14.5 million total global smartphone sales and its first profit in a year.  But in global sales Lenovo slipped to fifth, behind rising Chinese OEM Xiaomi, Inc.  A major cause for that slippage was Lenovo's struggles in the Chinese market, where LG wasn't even in the top ten.

Over half of smartphones sold in China are sold under a business model similar to America's more traditional cellular carriers, a model in which carriers offer big subsidies to try to lure customers into buy expensive handsets which are paid off by inflating contracts.

But China's top carrier China Telecom Corp., Ltd. (HKG:0728) has started to shift away from this model, lowering subsidies.  Some believe that it's hoping to shift to an unsubsidized model similar to most European carriers or upstart American carrier T-Mobile U.S., Inc. (TMUS).  The move is being keenly watched as China Telecom is viewed as the most successful disruptor in the world's biggest mobile market, rising from a 4 percent market share in 2008 to a 15 percent stake in 2013 -- good enough for third place and 185 million customers.

But proving the unpredictable nature of the market, once slumping China Unicom (Hong Kong) Ltd. (HKG:0762) is once more the hottest carrier, rising 12.5 peercent in subscriptions to reach 295 million mobile customers in Q2.  And of course, sitting in first place is the market's juggernaut China Mobile Ltd. (HKG:0941), which claims 790 million subscribers.

Perhaps the most successful blueprint for a foreign cellphonemaker in China is Samsung, who until recently was #1 in the market (it's currently tied for second).  Samsung's Galaxy series devices have been carried by all three top carriers since 2013.  
Samsung is thus far the most successful foreign OEM in China, volume wise, but despite that it was recently bumped to second by Xiaomi, a domestic firm.

Apple, on the other hand, initially launched on only China Unicom in Nov. 2009.  That exclusivity cost it; despite jumping to China Telecom in Mar. 2012 and China Mobile in Jan. 2014, Apple in Q2 wasn't in the top 5 OEMs in China.

But neither was any other foreign OEM, aside from Samsung (#2).  Xiaomi (#1; private, owned and cofounded by CEO Lei Jun), Lenovo (#3), Coolpad Group Ltd. (#4; owns the Yulong brand), and Huawei Technologies Comp. (SHE:002502) (#5) round out the top five, handing domestic firms four of the top five spots.

One key to domestic success has seemingly been pushing sales on China's internet portals.  One unusual aspect of the Chinese market is that only a little over half of customers buy their smartphone at the carrier.  A little under half buy it through e-commerce portals like Jack Ma's Alibaba (#1) (privately held) and JD.com, Inc. (JD) (#2).

II. Xiaomi Mi4 Will be Biggest Thorn in LG's Side

LG's launch is counting on e-commerce sales, as the LG G3 wasn't picked up by any of top Chinese carriers.  In China this typically isn't such a big deal, but for such a pricey smartphone, buyers may balk at buying such an expensive device online.

Comments Counterpoint's Seoul, South Korea analyst Tom Kang to Reuters:

No one really orders a BMW over the internet even though there's a price discount. You want to go into the shop, touch it, feel it.

Another key concerns is price.  The Galaxy S5 launched in special dual-sim form in April in China at CN¥ 5,299 (~$860 USD), and has been plummeting ever since. The iPhone 5S is a similar story.  Prices vary significantly by carrier and sales portal, but have generally been dropping fast as the foreign challengers struggled to compete with low-cost domestic smartphone makers like Xiaomi and Coolpad.

You can currently find an iPhone 5S for as little as CN¥ 3,650 (~$595 USD) and Galaxy S5s have sunk as low as CN¥ 3,699 (~$600 USD).  Both phones are struggling by against the Xiaomi Mi 4, the best-selling phone in China.  The Mi 4 retails for only CN¥ 1,999 (~$325 USD), yet backs a metal body design that rivals Apple.  
Xiaomi Mi4
The Xiaomi Mi4

The device drew approving "murmurs of 'iPhone' from journalists" at the July launch event due to the similarity of the device, Reuters reported.

CEO and owner Lei Jun does not shy away from the iPhone comparisons, which are quite intentional.  He idolizes late CEO Steve Jobs, emulating his blue jeans and black shirt look.  He also shares the late American CEO's flare for dramatic presentations.  At the press unveil he boldly took a jab at Apple, remarking:

Our product really is better than the iPhone.  Our white version is also better than their white version!  Even our white color is whiter!

The comment drew laughs, but beneath the surface the Mi4 is serious business.  It packs hardware that rivals the Galaxy S5, as well, including a 5-inch 1080 screen, a Qualcomm Inc. (QCOM) Snapdragon 801 MSM8974-AC (2.45 GHz; quad-core), and 3 GB LPDDR3.

Xiaomi Mi4
Xiaomi CEO Lei Jun idolizes Steve Jobs and emulates his flare for dramatic presentations, but he's no fan of today's Apple. [Image Source: Reuters]

The LG G3 carries a popular international pedigree and even better hardware than the Mi4, but it is also twice as expensive.  And there's somehwat cheaper Chinese analogues available, including the nearly identical QHD Oppo Find 7 from another rising OEM, OPPO Electronics Corp., or the Nubia Z7 from ZTE Corp. (SHE:000063). Both devices can be purchased for around $550 USD, roughly $100 USD cheaper than LG's device, despite providing nearly identical hardware specs.

III. Modest Expectations
 
While foreign OEMs are expected to get a boost from China finally turning on its in-development LTE networks in H2 2014, LG G3 will have tough competition even from foreign devices.  


While Samsung does not appear to be planning to launch its QHD Galaxy S5 LTE-A in China, it is expected to see a major rollout of the QHD Galaxy Note 4.  Apple's iPhone 6 is also expected to make a major splash in China when it launches in September.

Still despite all the factors working against it -- tough foreign competition, tougher domestic competition, price pressure, and seeing sales limited to only e-commerce portals, the launch of the LG G3 in China may still be a bit of a boost to the Android OEM given its modest sales objectives.  LG's goal is to sell 10 million LG G3s over the device's lifespan, according to Reuters.  By comparison the iPhone 5 is estimated to have sold 91 million units over its lifetime and more modest 50 million or so sales the Galaxy S4 accrued.

LG G3 in hand
LG's sales goals for the LG G3 in China are modest.  Even a million units would be deemed a terrific success. [Image Source: TechRadar]

Analysts say LG could says up to 3 million LG G3s, relatively easily in Q3 2014 alone, with perhaps at least a few hundred thousand of those sales coming from a new home, the world's biggest smartphone market, China.

Source: Reuters



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This article is over a month old, voting and posting comments is disabled

Competition is a good thing
By pugster on 8/10/2014 11:19:09 AM , Rating: 4
I hope that we see more phones sold closer to cost than the overpriced samsungs, lg's and iphones.




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