LG's newest flagship G4 unit. Source: LG
In the smartphone world, the conversation tends to center on Apple (AAPL 0.56%) and Samsung (NASDAQOTH: SSNLF) in the luxury markets and high-growth Xiaomi in the low and midrange ones. And that's mostly reasonable, as a Canaccord Genuity research note found that Apple and Samsung claimed 107% of all smartphone operating profits in the first quarter of 2015; the rest of the broader smartphone industry lost money.
For Xiaomi, the talk focuses on its amazing growth powered by sales in its home market of China, as the company operates on razor-thin margins and is barely profitable. Xiaomi's sales have recently slowed, thanks in part to Apple's tremendous growth in China, but are still on pace for 33% year-on-year growth.
Meanwhile, however, there are many other vendors competing in this crowded market. One of which is LG, which shares its home market of South Korea with fellow vendor Samsung. Like Samsung, the company operates a bifurcated smartphone strategy by making handsets for both the high-end markets (most notably, the company's flagship G4) and low-end units for developing markets. And, coincidentally, the company is struggling, much like its larger brethren.
Falling unit sales and profits
For LG, a company listed in South Korea, its recently reported second-quarter results were decidedly negative compared to last year's figures. On a smartphone unit-sold figure, the company reported 14.1 million smartphones this year, compared to 14.5 million last year. That's important because the aforementioned G4 model was introduced early in the second quarter and the company had relatively high hopes for the unit.
After the previous-gen G3 sold "between 6 million and 7 million units," the company widely expects 10 million units sold with the current model. Of course, these figures certainly don't prove poor G4 sales, but they don't portend a runaway success either.
More disconcerting, however, was the company's mobile division profits. According to The Wall Street Journal, LG's unit went from 86.7 billion Korean won ($75 million) to 200 million won ($173,000) as The Journal lists "weak sales of its flagship smartphone model" and "heavy marketing costs" for margin erosion. For the greater industry, however, weak flagship sales amid higher marketing costs point to a tougher market.
And while it's important to note that LG isn't a huge player in the market -- as Samsung and Apple shipped 73.2 million units and 47.5 million units, respectively, in the second quarter according to IDC's data -- it does point toward a more difficult smartphone market.
Apple "disappoints" as Samsung continues to do so
In perhaps the most amazing "miss" ever, Apple found itself fighting bearish sentiment after reporting disappointing iPhone sales figures. Against analyst consensus of 48.8 million iPhones sold, the company reported the aforementioned 47.5 million units sold figure. For perspective, that total is up 35% over last year's total with iPhone-related revenue growing 59% year on year. Shares sold off to the tune of nearly 7% that day in the after-hours markets, as many think Apple's iPhone growth trajectory will slow going forward.
For Apple's high-end competitor Samsung, the bad news in its mobile division continues. As of this writing, the company has not reported its second-quarter earnings but has warned on guidance that it expects a 4% year-on-year drop in operating profit. That would make seven consecutive quarters of declines, according to CNBC. The story of Samsung's poor profit has been its mobile business, which includes its smartphone revenue and profit.
For those following Apple and Samsung, it is only prudent to ask themselves if the smartphone market is going through a cyclical slowdown where growth will be harder to attain going forward, or is this just poor performance for these two South Korean vendors?
