A growing sense of crisis is prevalent in the Korean smartphone industry. Although Samsung Electronics and LG Electronics posted improved earnings in the first quarter, it is not clear whether they will record desired 2Q earnings due to a downturn in the global smartphone market.
On April 26, Samsung Electronics announced that its IM Division in charge of the smartphone business, posted 28.45 trillion won in sales and 3.77 trillion won in operating profit in the first quarter. Experts say that Samsung Electronics put up a good fight as the Samsung Galaxy S9 was launched early and its shipments surpassed ten million units early this month and were calculated in the company’s sales performances. The MC Division of LG Electronics, which takes care of the company’s smartphone business, also reported sales of 2,158.5 billion won and operating loss of 136.1 billion won. Although the MC Division failed to move out of deficit, the division improved its business structure.
However, it is unclear whether or not the two companies will be able to maintain similar sales performances in the second quarter. As the global smartphone replacement cycle has become longer, the smartphone market is shrinking. Samsung Electronics is expected to see a drop in sales of smartphones as production of mid- to low-priced older models was discontinued. It is also expected that in the high-end smartphone market, its profitability will slide due to sluggish sales of flagship models and higher marketing costs. LG Electronics is expected to launch the G7 ThinQ, a strategic smartphone, but is unlikely to go out of the red in the 12th consecutive quarter.
The problem is a slump in the global smartphone market and the rapid growth of Chinese companies. According to Strategy Analytics, a smartphone market analyst firm, Korean smartphones’ share in the global market will decline to 19.5% this year from 22.5% in 2015. Meanwhile, the global market share of three Chinese smartphone makers such as Huawei, Oppo and Vivo rose sharply to 18.4% from 10.5% in the same period.
In particular, Korean smartphones has a gloomy future as they are struggling in China and India, which are considered emerging big smartphone markets. In the Chinese market, Korea's share stood at 19.7% in 2013, but nosedived to 1.7% in the fourth quarter of last year. Four Chinese smartphone makers (the three above-mentioned companies and Xiaomi) accounted for a combined 48.7% share of the Chinese market in the fourth quarter of last year. Samsung Electronics's market share in that quarter stood at 0.8%, less than 1% for the first time in history.
Another growing concern is that Samsung Electronics was relegated in the Indian smartphone market where the company had ranked first for a long time. According to market researcher Canalys, Xiaomi topped the smartphone market of India for the first time in the fourth quarter of last year, with a 27% market share, followed by Samsung Electronics at 25%. In the first quarter of this year, Xiamomi recorded a 31% market share, while Samsung Electronics posted 25%, showing a widened gap.