Late to smartphone party, LG suffers in tough 2010

LG Electronics executives were quick to criticize the performance of its handset division last year, from an excessive focus on emerging markets to a failure to catch the smartphone wave early on.

Now comes word that the third-largest handset vendor missed its 2010 shipment goal of 140 million units by a lot. Shipments totaled 116.7 million last year, down from 117.9 million in 2009.

Its handset division also posted an operating loss of 658 billion Korean won ($US587 million) for the full year 2010, it said in a statement Wednesday, and sales fell 25 per cent year on year to 12.8 trillion won.

Meanwhile, rivals that focused on smartphones have been gaining market share, notably Apple, Research In Motion and HTC.

LG was "absolutely" late to the smartphone party, said Ramon Llamas, an analyst at market researcher IDC. LG has also suffered in feature phones due to a focus on emerging markets.

"Cutthroat pricing kills you in emerging markets," he said.

Still, with total handset shipments of 30.6 million units, LG is in no danger of losing its third-place ranking among global handset vendors. But 2011 is a different story. People all over the world are turning to smartphones.

"You gotta make hay with smartphones. Period," said Llamas.

LG started to make a comeback in smartphones in the second half of 2010 with its Optimus One, which has Google's Android mobile OS on board, as well as its first Windows Phone 7 smartphone. The Optimus One, in particular, has been a hit. Llamas estimates that LG sold around 2.5 million of the smartphones last year.

But he cautioned that one hit isn't enough amid escalating competition. "We need to see a series of home runs from LG," he said.

LG promised during its fourth-quarter investor conference on Wednesday to launch more premium smartphones this year, including new products such as the Optimus2X, Optimus Black and Revolution, as well as more cost-competitive feature phones and a range of tablet PC products.

Still, most handset vendors are focusing on smartphones, including incumbents such as Apple, and other companies that were late to catch the wave, such as Motorola.

The result will be more competition in smartphones next year, a bane for LG, but good news for users since competition in the handset business usually leads to greater variety and lower prices.