South Korean Tech Stalwart Notches Gains on Bigger Rival
By MIN-JEONG LEE
Samsung Electronics Co. has been battling Apple Inc. in the cutthroat global smartphone market, but in its own backyard, the South Korean technology giant has been fighting off a half-century-old rival, LG Electronics Inc.
While it isn’t yet a big material threat like low-cost Chinese makers, LG has been nibbling at Samsung’s smartphone market share and is becoming a bigger player in a number of product categories, including TVs and home appliances, and gaining technological edge in key components like displays. The two keep very close tabs each other’s product launch plans, according to people familiar with the matter.
To be sure, LG’s gains are coming in Samsung’s massive shadow. Samsung’s revenue of 229 trillion won ($218 billion) for 2013 is nearly four times bigger than LG’s 58 trillion won revenue for the same period, and Samsung’s 30.5 trillion won net profit dwarfs LG’s 223 billion won. In the second quarter, Samsung had a 25.2% share of the global smartphone market, while LG had 4.9%, according to researcher Strategy Analytics. Samsung remains a dominant force in terms of shipments for TVs and memory chips.
But when Samsung released its third-quarter earnings estimates earlier this month, its struggles in the smartphone market became ever more apparent. Samsung said its operating profit in the third quarter more than halved from a year earlier, largely due to weakness in its smartphone business. Its TV and display unit isn’t expected to have done any better.
LG, which reports earnings on Wednesday, is expected to see its operating profit as much as double, according to analysts, thanks to a better-than-expected reception of the G3 smartphone it launched in May. In South Korea, LG grabbed a 27% handset market share in the third quarter, its highest in years, and up from just 18% a year earlier, according to Counterpoint Research. During the same period, Samsung’s share slipped to 60% from 66%.
LG’s display-making affiliate, LG Display Co. , is poised to top its bigger rival Samsung Display Co. in both revenue and profit in the third quarter on solid sales of high-end screens used in Apple’s iPhones as well as LG’s flagship G series phones. Meanwhile, LG Display’s growing expertise in large-size, next-generation displays has allowed LG Electronics to beat Samsung in the launch of a series of curved-screen and super-thin TV sets.
Still, in a sign that Samsung is becoming increasingly conscious of its much-smaller hometown rival, the company took a page from LG’s playbook by introducing a rear-button function with its latest Galaxy Note 4 smartphone, which LG first introduced in its G2 smartphone last year.
LG didn’t miss out on the rare opportunity to mock its bigger rival bytweeting through one of its official accounts: “Thank you 4 taking Note.” Samsung declined to comment on the tweet.
For decades, the crosstown rivals have taken pride in pioneering technologies used in everything from TVs and refrigerators to washing machines and mobile devices. They compete in nearly identical global markets and product categories.
Their rivalry culminated in a bitter fight in September when LG executives entered an electronics shop in Berlin and allegedly broke the doors of multiple high-end Samsung washing machines. Samsung swiftly filed a formal complaint with the Supreme Prosecutors’ Office, requesting an investigation. LG denied allegations of ill intent, saying the executives were casually “checking out” the doors when they unexpectedly broke. LG also took the occasion to highlight that it outsells Samsung in washing machines, one of the few categories where LG tops Samsung.
The incident is under investigation by the South Korean authorities. The prosecutors’ office declined to comment on ongoing probes.
LG—which began in 1958 as a company called Gold Star, a maker of radios—has a history of falling behind Samsung in technological prowess. Its revenue was almost on par with that of Samsung, which was established in 1969, as a maker of black-and-white TVs, until the mid-1980s, when Samsung made a lucrative push into computers and semiconductors.
The gap widened after the Asian financial crisis of the late 1990s, when the government forced LG to divest its chip business as a part of a broad restructuring of the conglomerates known as chaebols. That chip business became SK HynixInc., the world’s second-largest memory chip maker after Samsung.
When word was circulating last year that LG Electronics would introduce an “industry first” curved-screen smartphone in the fourth quarter, Samsung surprised the market at a media event in September 2013 with news of its own curved-screen phone. Samsung launched its Galaxy Round smartphone the following month exclusively in South Korea.
LG launched its LG G Flex in November, and rolled it out in global markets. Sales figures haven’t been disclosed for either of the curved-screen phones.
Following LG’s successful G3 phone launch this year, Samsung responded in September with a new phablet, dubbed the Galaxy Note Edge, with a screen that wraps over one edge to display messages.
“It comes down to what kind of benefits our product can provide to customers, because we can’t earn money without customer satisfaction,” said Chris Yie, vice president for marketing at LG’s mobile unit. Mr. Yie said LG is preparing to counter Samsung’s Galaxy Note Edge, without going into specific details.
The two companies appear to have selected their next battleground: A team of LG Display engineers is working to bring flexible screens that can fold in half for smartphones, while Samsung Display aims to start production at its flexible-display production line early next year.
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