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Another CEO head rolls while the smartphone market booms

Management changes are usually made at the end of the year but the change, which takes effect from October 1, reflected an urgency to overhaul the struggling mobile unit.

“We made the decision to give an incoming chief executive enough time to prepare for next year,” LG Group said in a statement.

LG Elec names new CEO as mobile business struggles | Reuters.com

LG follows Sony Ericsson, Motorola, Palm and Nokia in replacing CEOs because of trouble with their smartphone efforts. Microsoft also let go Robbie Bach, head of the Mobile division.

It’s an interesting pattern at a time when the industry is facing unprecedented growth.

  • Vertti

    So that is the third company to have trouble (Palm was sold.. Nokias CEO.. LG..) Who is next? SonyEricsson anybody?

    • http://www.asymco.com asymco

      Thanks for reminding me about Palm. Sony Ericsson head was replaced in 2009 (see link in article). Five replaced CEOs, six if you include Microsoft's Bach. In fact the only major vendor still unchanged is Samsung.

      • Vertti

        So we are even xD I forgot Sony Ericsson and you Palm :D
        Samsung is intact only because it is major partner for Apple?
        Thoug so is LG (displays)…

  • Rob Scott

    I think we will have another round in three years or so. Android will turn to a low/negative margin business in a year or so, starting early next year. Most of these companies (CEOs) are already struggling to make profit

  • alexkhan

    About Korean Conglomerates

    Samsung makes up around 20% of the Korean economy, which is quite significant and a lot of Koreans don’t like one company having that kind of power and influence. LG probably makes up another 10%. Heck, the CEO of the Samsung Group (the largest industrial conglomerate in the world), Lee Kun-Hee, was indicted for tax evasion but the government let him off the hook because of what Samsung means to the Korean economy. That’s the type of company Samsung is and the same goes for LG.

    Samsung (along with the other “chaebol” conglomerates in Korea like LG, Hyundai, Daewoo, Sunkyung, etc.) got in the position of where they are through their cozy relationship with the military dictatorship government of President Park Jeong-Hee in the 60′s and 70′s. The government essentially subsidized these companies so they can export cheap stuff all over the world. These companies didn’t earn anything on their own. They essentially bribed their way into the position they’re in now.

    Also, the products of these Korean conglomerates like the Hyundai cars and Samsung/LG phones, TV’s, washing machines, etc. cost more in Korea than they do in the export markets like the US. Through their collusion with the Korean government, they overcharge the Korean consumers while imposing very high tariffs on imported goods from the US, Japan and Europe so they can make their profits in the domestic market and sell cheap overseas so they can gain market share and expand manufacturing capacity.

    When the iPhone was introduced to the Korean market last year, Samsung and LG went into a panic mode and set off a marketing campaign with a nationalist xenophobic theme telling the Korean consumers that they need to be “patriotic” and buy Korean-made products. Well, the Korean consumers aren’t falling for that line and have been snatching up iPhones faster than Apple could provide them. It’s ridiculous what these Korean conglomerates resort to. You think Microsoft, Apple and Google are bad? These Korean conglomerates make them look like saints.

    • Iphoned

      It is a good summary of how Samsung and LG got there (Japanese used similar tactics, san corruption), but one can't deny that now they rule some key consumer electronics areas. Samsung in particular has emerged as the #1 Apple competitor in mobile and LG will likely joint the fray soon.

      Both are also vital Apple suppliers, not easily replaced. Samsung makes Apples' ARM chips and LG manufactures Retina displays.

      Unlike Nokia, these are nimble competitors, taking advantage of Android. And unlike Motorola they control vital component technologies (display and ARM chip manufacturing

      It seems both are likely to emerge as Apples' top mobile competitors.

      • http://www.asymco.com Horace Dediu

        Of all mobile phone competitors I consider Samsung and LG to be the worst positioned. Samsung is very late to try to implement a software strategy.

        For many years the Samsung strategy was to license and and all OS platforms and field as many products as they could, launching hundreds of models. They licensed PalmSource, Windows Mobile, Linux, Symbian, Android. They finally decided to build their own platform and are only now beginning to roll out their own OS and ecosystem around Bada. It's not clear how much commitment this will get given the inherent tension in strategy between licensing and building. Licensing generates revenue and building platform burns cash. Which approach do you think wins when the business has a cyclical downturn?

        A multi-platform approach might seem flexible but it's also an approach that creates no platform value. It is consistent with a conglomerate approach to business where you just try to have your fingers in every pie. Conglomerates have become quite rare.

        LG simply avoided the entire smartphone sector and is now paying the price. The best they can hope for is to be like Samsung.

        The real winner among the licensing crowd is HTC.

      • alexkhan

        Samsung is definitely very wary of Apple because they see what happened to Sony with the iPod and Nokia with the iPhone. Apple clearly has Samsung on its sights – including the TV business in the future. They both want to rule the connected home/living room and will be competing vigorously in that area. The same goes for LG but Samsung is certainly the more powerful company.

        The thing about Samsung and LG is that they have no coherent strategy when it comes to the mobile platform. They just follow what's going on and then throw whatever they can at the wall and see what sticks. Samsung is really wasting its time trying to build a platform/ecosystem with their Bada. You know that they'll offer the WP7 phones and tablets as well. Ditto for LG. Samsung would love to control their own platform and not rely on the Android or WP7 for their phones and ecosystem, but that's just *not* going to happen.

        The thing that works against Samsung and LG is that they're too spread out doing too many things besides phones, PC's and TV's. They also do refrigerators, washing machines and dryers, rice cookers, microwave ovens and just about anything else that plugs into an electric outlet. I'm not even going to get into the businesses of their other affiliates that do everything from shipbuilding to insurance and sunglasses to toothpastes. But in the meantime, their most profitable businesses are the semiconductors (58% of Samsung's profits) and the flat panel displays that they sell to Apple and other PC companies.

        The chip and display divisions at both Samsung and LG do not really care where the orders come from. They have a mandate to keep the factories running at maximum capacity. They'll happily take orders from Apple (as well as HP, Dell, etc.) as they do from their own phone and TV divisions. It's up to Samsung and LG's mobile products divisions to create the demand for their products if they don't want to sell the components to Apple. Right now and for the foreseeable future, they need Apple's business to keep the factories humming and the profits coming because they're certainly not making as much money with the phones.

        I'm sure Apple is very well aware of their supply chain situation. For one, they'll continue to pit Samsung and LG against each other as they are archenemies and Apple will continue to develop new sources in China that want a piece (or big chunks) of Samsung and LG's chip and display businesses. The fact that Apple will also compete with Samsung and LG makes the stakes that much higher for Apple. Apple has some time but you know Apple does not want to rely on their chief competitors for these critical components.

        I believe Apple is working feverishly in China to develop alternate sources and it's also why Apple's been acquiring chip design companies. Samsung and LG are aware of this too. They need to fill the chip and display factories with orders for their own phones and tablets before Apple pulls out completely by going to alternate sources. That may take years, but they both know that it's inevitable and they're all racing against time right now. Does Apple pull out first when Samsung/LG still need Apple's orders or do they lock out Apple when Apple still needs the components?

    • Vertti

      What makes me tick right is that even though the Apple is not stupid ie it takes advantage of these subsidies… The Apple don't hit the point that is… "let's go with the cheapest possible thing"… Apple seriously want's to make quality and not to fight with these who are in just for the lowest point of common denominator.

  • Iphoned

    I don't understand how you can call Samsung worst-positioned, given their latest smart phone sales and early tablet entry..

    • Jim

      Their early tablet entry is premature, uses software that even Google calls unsuited to tablets and has pricing issues that require it be sold subsidized by carriers. Samsung is making strides in its smartphones (and TVs) but its PC division is lacklustre (mee-too). Samsung makes the components but it's the operating system that governs the capabilities of those components. Bada is unlikely to change competitiveness, but may help capture more profit for Samsung at the mid-level.

      Hyundai is moving up market, very successfully – against a poor history of cheapness and unreliability. They've shaken that viewpoint by constant iteration that initially copied other companies, and then strode out pon their own – but at a value price. That is the Korean model for success (kinda like the inverse of Nokia). I still prefer German cars, but Hyundai is going to match and exceed Honda and Toyota.

  • http://, Iphoned

    I mean, Samsung is now selling 1m smartphines month in the US alone, and on track to have sold 10m by year end. In fact, The numbers indicate they have emerged as #1 Apple mobile competitor worldwide.

    If you think this is worst-positioned, then Apple is in trouble.

    • alexkhan

      This is quoted from an article about Samsung in fool.com:

      “In a Twitter post, Samsung said that by next week, it will have shipped 2 million Galaxy S phones in the United States; Samsung said it shipped 1 million Galaxy S devices in the U.S. market at the end of August.”

      That doesn’t quite sound like 1 million phones per month in the US or anywhere near 10 million. Are there other Samsung smart phones besides the Galaxy S?

      One thing we never see anywhere on the web is how are all these Android phone makers doing against each other? How is Samsung doing against Motorola or HTC? Why is the focus all on Android vs. iPhone as if all these Android phone makers are one and the same when they are competing more against each other than Apple?

      So how does the Galaxy differ from the Droid or the HTC Incredible? What sets those phones apart from each other besides the brand stamped on the case? One Galaxy sold means one less Droid sold and vice versa. For whatever reason, all these Android phone makers seem way more obsessed with Apple than with each other when they’re actually beating up each other more than they’re beating up on Apple.

      • http://www.asymco.com Horace Dediu

        This question of competition among licensees of the same OS was studied when Windows Mobile had dozens of licensed products in the market at the same time. At one point there were more than 50 Windows Mobile phones launching every month. The remarkable thing was that even with so much product in the pipe, 80% of the volumes came from one vendor: HTC. HTC beat Motorola, Samsung, Sony Ericsson and dozens of others. How? by iterating more rapidly, but also by offering their designs to others for branding. Operators were especially enthusiastic about rebranding HTC products. When I first heard of Android I expected HTC would run with it and would repeat their success.

    • http://www.asymco.com Horace Dediu

      Positioned is not the same as performing. I repeat: Samsung has just begun developing a software platform at a time when the basis of competition is based on software platforms. Without a platform, Samsung will be challenged by low-end manufacturers from China.

  • Iphoned

    @asymco

    Samsung is using Android as software platform, so that should do fine for them. Coupled with their hw track record, they should be able to do at least as well in smartphones as the did in phones prior. They can manufacture in China if need be just as well.

    Low cost Chinese manufacturers weren't a factor in mobile phones before, I don' see why they should do any better now.

    Samsung appears to me both quite well performing and well positioned.

    • Rob Scott

      Read up on ZTE when you have a chance. They are cleaning up on entry devices and are now developing very cheap Android based smartphones.

      The problem for Samsung and other Android manufacturers is: what do you do when the ZTEs of this world enter the race using exactly the same OS as you but charging 70% less for a similar device to your top of the range.

      If you think this is not a problem, look at the margins on PCs. I suspect that it is going to be worse in phones (look at entry phones/Nokia for example).

      The advantage for Apple is that carrier subsidies hide the actual cost of their devices making their phones very competitively priced. All Apple has to do is to keep the interest and satisfaction high. It is only when Apple fails to drum up interest that the Samsungs of this world would give Apple a run for their money. I will not be holding my breath.

      • alexkhan

        Exactly. How do you differentiate when dozens of other vendors have the same software platform that you are using? The Chinese companies (a virtual Chinese army) will flood the market with super cheap Android phones over the next few years. This is exactly why Samsung is in a race to develop a software platform of its own. It'll be the only way they'll remain relevant in the high-end or even the midrange of the phone market in the future. It's also why HP acquired Palm for their webOS to differentiate themselves and are holding back from offering Android (and WP7) devices although HP will probably go that route as well.