If the growth in handset sales in mature markets such as the United States slowed somewhat at mid-year, as some market and financial analysts have suggested, one explanation may be the dearth of new product launches. That has opened a window of opportunity for nimble competitors, and LG Electronics Co. Ltd. has slipped past the two leading handset behemoths to launch the CU500, the first HSDPA phone on Cingular Wireless L.L.C.’s high-speed network.
With the CU500 for Cingular and the Chocolate phone launched with Verizon Wireless, LG has grabbed a chance to elevate its brand awareness among Americans, impress them with its technical prowess and make a style statement-three items on its to-do list for remaining a top-tier player in the hyper-competitive handset business.
With Nokia Corp. and Motorola Inc. consuming ever-greater market share (about 55 percent combined in the second quarter, according to Strategy Analytics), Samsung Electronics Co. Ltd. at double LG’s share (with 11.2 percent and 6.5 percent, respectively), and Sony Ericsson Mobile Communications L.P. neck-and-neck with LG (Sony had 6.7 percent share to LG’s 6.5 percent), the time is ripe for LG to make hay.
“It’s timing, timing, timing and location, location, location,” said Jon Maron, director of marketing at LG. “We’re in the right location because we’ve got core, innovative handsets at all three of the top carriers. And the timing is perfect because the market is ready for something new. Not to take anything away from the Razr, but now that it’s everywhere and $49, it’s just like any other handset. Consumers are beginning to adopt that `been there, done that’ mentality. It’s extremely important for LG to produce the first HSDPA handset for Cingular not only strategically, but also from a partnership and branding position.”
Avi Greengart, principal analyst for mobile devices with Current Analysis, largely agrees; he recently gave the CU500 a positive rating for a number of reasons.
“I like the CU500 because it’s good for LG’s brand, it’s good for LG’s relationship with Cingular and, at $99, it’s a nice product,” Greengart said. “At Cingular right now there’s not much competition. If all you want is voice-and millions of people do-the Razr V3 is a hard product to beat. But if you are looking for a multimedia powerhouse handset at Cingular in that form factor, LG has a window of opportunity.”
According to Greengart, the CU500 is well featured-it has a 1.3 megapixel camera, an MP3 player, removable memory and it highlights Cingular’s service that can tell you what song is playing on the radio-without being a high-end device. The major differentiator: it runs on Cingular’s in-progress HSDPA network, which the carrier forecasts will cover most of the nation’s top 100 metro markets by year’s end. Greengart said the higher network speeds make Cingular’s CV streaming video service run more smoothly, but the limited availability of the HSDPA network upgrades may constrain the CU500’s advantages.
“The average customer looking for an inexpensive voice handset will opt for a cheaper Razr than the more expensive CU500,” Greengart said. “But there is a whole class of customer that is looking for mobile video, a higher resolution camera and removable memory. And that class of customer may find the CU500 attractively styled, priced and featured. Motorola has not yet announced a competitor to that product. Do I expect to see one by Christmas? Yes I do. By that time the CU500 will be a slightly tougher sell.”
Launching the first HSDPA phone in the U.S. matters to LG and Cingular, Greengart said, but not to the consumer. For LG, being first is an important part of being a technology-focused brand. Apart from techno-bragging rights, being first also conveys certain market advantages, the analyst said.
“For LG in the U.S., getting shelf space at a carrier is the only way you’re going to get a phone to a customer,” Greengart said. “One way to do that is delivering phones that the carriers want. You deliver a product that helps the carrier launch its HSDPA network and your mid-priced line also gets shelf space.”
Greengart cautioned that the number of consumers in search of video service remains an industry frustration.
“The reason I don’t place much emphasis on HSDPA is that, at least in the U.S. market, consumers don’t seem to be saying, `Ooh, I need 3G-it’s the speed of the network that’s been lacking in my life,”‘ Greengart said. “HSDPA offers the consumer smoother video, but on a service that it launched on its UMTS network just a few months ago. The CV user interface is fairly straightforward and that’s more than I can say for some of the others. Although Cingular was last to market with a streaming video service, they learned some lessons from their competitors’ problems.”
The industry’s “dirty little secret,” the analyst wrote recently, is that after spending billions of dollars on 3G licenses and upgraded networks, consumers have yet to show much interest.
“Do some consumers want video?” Greengart asked. “Absolutely-but not enough for me to say that they’re buying certain handsets and driving adoption of data services.”
In the bigger picture, the analyst said, the CU500 follows the Razr form factor and that is merely a tactical, if effective move by the South Korean vendor. LG’s strategic imperative is to offer unique designs such as the Chocolate phone.
“That’s the right direction and we’re seeing that from LG,” Greengart concluded.
From LG’s perspective, its ambition is to offer a complete portfolio of form factors, technology and price points to serve carriers’ and thus consumers’ needs.
“How important is the CU500 in our lineup?” Maron asked. “All our top-line devices this year, heading into next year, are music-enabled. The CU500 has an innovative design. We think consumers are ready for a great choice beyond the Razr and we think the CU500 is absolutely it.”
Maron agreed that the late summer and early fall represents a critical window of opportunity for LG in the U.S. while Motorola’s new launches have yet to hit the market. But the key to sales remains a vendor’s carrier relationships.
“We make unique platforms for our carrier partners,” Maron said. “The LG phone you buy at Sprint is not the same as the LG phone at Cingular or Verizon. The carriers thank us for that, because it makes our handsets exclusive to them.
“It’s about personal relationships,” Maron concluded. “We walk in with a design team and say, `What do you want? When do you want it by? And what does it need to do?’ That’s what we did with the CU500, just like we did with the Fusic for Sprint. It’s a way of doing business that works.”
