Company is first Android tablet maker to call it quits post-Surface, will "focus on smartphones"

Finally profitable South Korean gadget-maker LG Electronics Inc. (KSC:066570) was eyeing a deeper charge into the tablet market.  But in the wake of Microsoft Corp.'s (MSFTannouncement of the "Surface", a 10.6-inch super-slick Windows 8 tablet, LG decided the time was not right for deeper market penetration.

I. Bye Bye Tablet Market, Says LG

Ken Hong, a spokesman for Seoul-based LG, commented in an email to Bloomberg, "We’ve decided to put all new tablet development on the back burner for the time being in order to focus on smartphones."

LG currently has a minimal presence in the tablet market -- the market for large touch-screen devices that tread the line between a smartphone and a traditional personal computer.  Last March LG launched its first tablet, the Optimus Pad, which was marketed as the "G-Slate" on Deutsche Telekom's (ETR:DTE) T-Mobile USA network.  That dual-core Honeycomb tablet was followed up on by the announcement of the Optimus Pad LTE earlier this year, but that tablet has yet to ship.
Optimus Pad LTE
The Optimus Pad LTE will likely be LG's last tablet for now. [Image Source: LG]

The tablet market is expected to reach $78.7B USD this year, but Android tablet makers like LG have struggled against market leader Apple, Inc. (AAPL).  So far the company that has made the most progress is, Inc. (AMZN) whose $200 USD Kindle Fire runs a branched variant of Android that Amazon designs in-house.

The big problem facing the Android pack is price.  None of them can match Amazon's attractive $200 price.  For example the G-Slate debuted at $529 USD, before eventually falling to $399 -- twice the price of a Kindle Fire.  Those prices put it in the same ballpark as Apple's iPad, which starts at $499.  But thus far Android tablet makers have failed to convince tablet consumers that their product is worth as much as an iPad.

Microsoft's arrival on the scene has sent further waves of fear through the huddled ranks of Android manufacturers.  While its tablets will likely be priced at higher than an iPad (one estimate we've been hearing is $900 USD for the Intel Corp. (INTCIvy Bridge model), they pack a full-fledged PC-operating system and a keyboard that looks far nicer than bare-bones wired and wireless keyboards for Android tablets.

They also have a colorful and striking design flare that easily outshines the more demure Android designs like the G-Slate, a substantive design that arguably outdoes Apple at its own game.

In short, it's increasingly looking like Apple and Microsoft will dominate the high-end, while quasi-Android tablet-maker Amazon will sweep up on the low end.  The rest of Windows 8 and Android third party crowd are left with a less certain fate trying to sell less-distinctive devices at middle-of-the-road price points.

II. Company Faces Challenges in the Smartphone Sector

LG's focus on its phone offerings is needed.  Apple recently passed it in unit sales, a testament to the twilight of the feature phone -- a market that LG long performed well in.  That's not necessarily bad news for LG.  It's turning a profit, and smartphone can be a much higher margin business than feature phones.  

But competition is very fierce in the smartphone market right now.  Windows Phone maker Nokia Oyj. (HEX:NOK1V) has started to gain ground.  Apple continues to accelerate its iPhone sales.  And Samsung Electronics Comp., Ltd. (KSC:005930) has consolidated its market share into a world-leading Android smartphone empire.  With LG positioned similarly to other scrappy challengers like HTC Corp. (TPE:2498) the demand to execute in terms of product launches has never been higher for the electronics firm.

LG Optimus Vu
LG's Optimus Vu is an impressive 5-inch Android smartphone. [Image Source: LG]

LG's Optimus line has started to gain some brand recognition in the U.S.  But it has a long ways to go before it becomes as well known as, say, Samsung's Galaxy line of smartphones.

Source: Bloomberg

"It looks like the iPhone 4 might be their Vista, and I'm okay with that." -- Microsoft COO Kevin Turner

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