LG Electronics succeeded in boosting its profits in the global smartphone market in the third quarter, while Samsung Electronics’ plummeted. LG’s sales are much higher than Samsung’s, but the latter is still number one in the market, whereas the former ranks fourth.
Market experts attribute this unprecedented wide quarterly performance gap to business in China. LG Electronics is currently not selling smartphones in China. It is not planning to do so in the near future, either. Samsung Electronics, meanwhile, grew rapidly in the Chinese market, but has taken a serious hit due to the Chinese government’s policy of a subsidy cut, the main purpose of which is the protection of Chinese handset manufacturers.
Samsung Electronics announced on Oct. 30 that its IT & Mobile Communications (IM) Division recorded operating profits of 1.75 trillion won (US$1.65 billion) and sales of 24.58 trillion won (US$23.24 billion) in the third quarter. Sales decreased by 32.8 percent year-on-year and by 13.6 percent quarter-on-quarter, while profits plummeted by 73.9 percent from a year earlier and by 60.4 percent from the previous quarter. In the second quarter, the sales and profits amounted to 28.45 trillion won (US$26.90 billion) and 4.42 trillion won (US$4.18 billion) each.
LG Electronics’ Mobile Communications (MC) Division posted sales of 4.2470 trillion won (US$3.9721 billion) in the third quarter, to break the four trillion won mark for the first time in five years. The business profits soared to 167.4 billion won (US$158.3 million), too. The division earned 3.6203 trillion won (US$3.4234 billion) in sales and 85.9 billion won (US$80.3 million) in operating profits in the second quarter.
Samsung Electronics made a huge investment in the Chinese market on expectations that the market would show an explosive growth. However, its market share in China dropped. In contrast, LG Electronics is focusing on the Americas and Europe instead of China. It said at its earnings announcement on Oct. 29 that it would not hurry into the Chinese smartphone market.
Last year, the Chinese government told mobile carriers to cut their subsidies for imported mobile phones by 20 percent. The policy has had a significant impact. According to market research firm MIIT, the market share of non-Chinese handset makers in China dropped from 36 percent to 10 percent between January and September this year, whereas that of Chinese manufacturers rose from 65 percent to 90 percent.
It is Samsung Electronics that has been the biggest victim of the policy. Its Chinese market share fell from 23 percent to 14 percent between the first and second quarters of this year, and is estimated to have dropped to an even lower level in the third quarter.
The policy has affected other suppliers such as Apple as well. Chinese consumers are less enthusiastic than before about the new iPhone, with telecoms operators reducing their subsidies for the device. Chinese manufacturers are benefiting from the policy, though. According to market research firm Strategy Analytics, Xiaomi ranked third in sales volume in the global smartphone market in the third quarter. It sold 18 million phones during the period to account for 5.6 percent of the market and outdo LG Electronics by a margin of 1.2 million units.