LG Electronics says cell phones are a challenging business call

SEOUL - LG Electronics Inc's new Optimus phone sports a display sharper than the one on Apple Inc's iPhone and its chip puts it on a par with Samsung Electronics Co's newest Galaxy. But Gwon Soo Seok, 23, isn't won over.

"LG's image is that of a laggard," said Gwon, a student in Seoul who is leaning toward an iPhone or a Galaxy. "LG seems to have good technology, but Apple and Samsung are the cool ones," said Gwon, who stopped using devices made by Seoul-based LG, the world's No 3 phonemaker, three years ago.

The failure to woo consumers like Gwon leaves LG at a disadvantage to Apple and Samsung in smartphones, the fastest-growing segment of the $207 billion mobile-phone industry. LG had 718 billion won ($625 million) in operating losses at the handset division in the year to June, compared with a 5.7 trillion-won profit in the same period at Samsung.

"LG was slow to embrace the smartphone market, and they are still having a hard time correcting the mistake," said Lim Han Eui, a telecommunications consultant at ROA Consulting in Seoul. "There has been nothing particularly special about their phones. They need to develop their own color and identity."

LG, whose panel unit supplies the "Retina" displays used in the iPhone, introduced its first smartphone globally last year, more than three years after the debut of the Apple device.

Apple, based in Cupertino, California, accounted for 18.5 percent of global smartphone shipments in the second quarter, compared with 13.5 percent a year earlier, research company Strategy Analytics said in July. Nokia Oyj, based in Espoo, Finland, dropped to third place, falling behind Samsung after its market share shrank to 15.2 percent from 38.1 percent.

Including basic phones, Nokia remained the world's biggest handset maker with a 24.5 percent share, followed by Samsung at 20.5 percent and LG at 6.9 percent, according to the researcher.

"They've been behind the curve and are constantly playing catch-up," said Annalisa Di Chiara, a Hong Kong-based senior analyst at Moody's. "The question, really, is whether they will ever catch up on the mobile side."

Earlier last month, Moody's cut the outlook for LG's Baa2 issuer and senior unsecured debt rating to "negative" from "stable," citing weakness in the handset market. Standard & Poor's lowered the long-term corporate credit and senior unsecured debt ratings to BBB- from BBB on Oct 14.

The company is aiming to stem losses and convince investors a turnaround is possible. Koo Bon Joon, the younger brother of LG Group's chairman, took over last year after his predecessor Nam Yong quit, taking responsibility for failing to come up with a model to counter the iPhone.

The maker of Chocolate and Prada handsets is cutting back on less-profitable models, Park Jong Seok, head of the mobile business, said in July. More than 12 new models have been unveiled this year, under the Optimus brand.

LG showcased the Optimus LTE in Seoul on Oct 10, touting its 329 pixels-per-inch screen compared with the iPhone 4S's 326. The chip has a 1.5 gigahertz processor, the same as Samsung's latest Galaxy model.

LG has the strength in technology for next-generation mobile devices such as the long-term evolution model, said Ken Hong, a Seoul-based spokesman. The latest phone is capable of running on faster networks using the so-called LTE technology.

"Time is ripe for us to put that into action," he said. "The Year 2012 is going to be a significantly different scene from now."

The company is also betting on 3-D technology in mobile phones, a feature Samsung and Apple don't offer. It introduced a 3-D phone this year and plans are in place for more, said Jeong Ok Hyun, head of LG's research center.

Full-year net loss at the mobile-phone division may narrow to 270 billion won in 2011 compared with the 654 billion won loss a year earlier, according to the average of four analysts' estimates compiled by Bloomberg News.

"LG's strategy seems to be to make anything they can come up with, with the hope that something will become a hit," said Woo Chang Hee, a Seoul-based analyst at LIG Investment & Securities Co. "They may be taking the right steps, but the pace isn't fast enough."

Until that happens, student Gwon says he will stay away.

"I want to see more people around me using LG phones first before I buy," he said.

Bloomberg News