Koran Handset Market Recovery Expected from August

The research house, Korea Investment and Securities says that it expects Samsung Electronics (SEC)'s and LG Electronic (LGE)'s respective handset shipment volumes to have fallen 3.2% and 2.5% MoM in July. However, considering that sell-in volumes usually rise in distributional channels in June, shipment volumes in July were relatively modest. SEC and LGE should experience a full-blown recovery from August. SEC's global launch of its Ultra Edition series just started, and LGE's shipments of its Chocolate Phone are ongoing, especially to the Americas.

In addition, the ASP has been increasing since July due to the rising portion of terrestrial DMB phones. However, shipment volumes and the portion of premium phones are falling short of expectations to achieve a meaningful recovery.

In July, domestic demand for handsets slipped 3.3% MoM to 1.45million units, which is modest given the effect the World Cup Games in June had on DMB phones. August domestic shipment volumes should remain in line with July at 1.4 to 1.5million units.

Based on July earnings results, the chance of an improvement in handset profitability is slight, however, the possibility will be larger backed by growing shipment volumes of premium models from SEC and LGE starting in August. Currently, SEC's Ultra Edition is receiving a good response, and the reduction of its models (folder, bar, sliding) should provide a differentiation opportunity.

LGE's shipment volumes of its Chocolate Phone should surpass 1.5million units in 3Q from 1.2million units in 2Q, backed by increased marketing in the Americas. However, LGE is unlikely to show a meaningful profit recovery in the handset division in 3Q, given: 1) LGE's UMTS Phone shipment volumes are declining due to a lower supply share within Hutchison, and 2) it should take time to reach shipment volumes of 4.5million units, despite the likely recovery in the supply share to Verizon.

 

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Posted to the site on 14th August 2006