LG Electronics (LG), South Korea's second-largest electronics maker, vows to expand its mobile phone business in China by introducing GSM (global system for mobile communications) handsets in May.

"We will launch six models of GSM handsets in China this year," Kim Mansik, general manager of LG Electronics' telecommunications department, said in an exclusive interview recently.

The first two models will be launched in May, he said.

The GSM handsets will be manufactured through co-operation with leading Chinese information technology (IT) firm Langchao, according to Kim.

Without a licence from the Ministry of Information Industry to produce handsets in China, LG has to seek a local partner.

Through co-operation with Langchao, LG launched two models of GSM handsets late last year, but the products were manufactured in South Korea, while all the new models will be produced in China, he explained.

The six models will be targeted at the high-end market. But he added that next year, LG will provide a full range of handsets, from high-end to low-end, in China.

"The mobile phone business will be very important to the great leap forward in our China business, beginning this year," said Kim Ssang Su, LG Electronics' vice-chairman and chief executive officer, during his visit late last month.

"And we expect to be No 1 in the global GSM handset market, as we have achieved in CDMA handsets," he said.

LG overtook Motorola and Samsung and became the world's largest CDMA handset maker last year, commanding a 21.6-per-cent market share globally, according to a leading US market research house, Strategy Analysis.

In China, LG took a lion's share of 21.9 per cent in the CDMA handset market in February, up 4.1 per cent from January, indicated statistics released by the leading domestic data tracking firm Sino-Market Research.

The company has ranked top in China's CDMA handset market since the third quarter of last year.

"We found GSM mobile phones are much more popular than CDMA ones in China, thus we decided to put more energy into GSM handsets," said Kim Mansik.

Mobile phones will be the fastest-growing sector of LG Electronics' business, which also includes household electrical appliances and IT products, said James Kang, general sales manager of LG Electronics' China operations.

"The annual sales revenue of handsets on the Chinese mainland will attain 4.3 billion yuan (US$518 million), and we expect the figure to reach 20 billion yuan (US$2.41 billion) in 2008," Kang told said.

In comparison, the annual sales revenue of LG's household electrical appliances in China is expected to be 10 billion yuan (US$1.20 billion) this year and amount to 22 billion yuan (US$2.65 billion) in 2008. For IT products, the corresponding figures will be 2.6 billion yuan (US$313 million) and 4 billion yuan (US$481 million), said Jiang.

"China's huge mobile phone market, of 60 million units, is too attractive to be ignored," he said.

LG's handset business in China grows faster than its global average, said Kang.

Around the globe, LG's revenue from telecommunications rose 40 per cent during the first quarter, while sales of TVs and other displays rose 17 per cent, and that of household electrical appliances gained 7.2 per cent, the company said.

However, LG's low operating profit margins in its handset business create uncertainties about that division's outlook, said an analyst.

LG generated 3.1 US cents in operating profit for every dollar of revenue from handsets in the first quarter, compared with 5.7 US cents in the year-earlier period. That is LG's lowest operating profit margin for mobile phones since the second quarter of last year, according to the company.

By comparison, the operating profit margin of Samsung phones exceeded 20 per cent in the first quarter, and Nokia averaged 23 per cent last year.

"I'm not sure about the outlook of LG's handset division because the company has provided relatively lower operating profit margins than its competitors," Park Hyung Ryul, managing LG Electronics stock at Seoul-based KTB Asset Management Co, was quoted as saying by Bloomberg.

Eyeing high-end

LG's move to fully tap China's mobile phone market is in accordance with its strategy to increasingly focus on high-end markets in all sectors -- telecommunications, IT and household electrical appliances, said company officials.

"As we are well-established in China after 11 years of development, we are beginning to pay more attention to high-end consumers," said Kim Ssang Su.

LG enjoys a brand-awareness of 46 per cent in China, according to Kim Ssang Su, and those LG product users and residents of large cities belong to the high-end category.

"In displays, we will focus on DLP (digital light processing), LCD (liquid crystal display) and PDP (plasma display panel), and our Chinese counterparts are more competitive in CRT (colour television)," he said.

In particular, the 2008 Olympic Games will significantly boost the PDP market in China, and market growth is expected to more than triple by that time, he said.

"We aim to be the world's No 1 PDP manufacturer," said Kim Ssang Su.

LG has already grabbed the lion's share of the global LCD market. Its joint venture with Royal Philips Electronics, LG Philips LCD Co Ltd, is the world's largest LCD maker.

The company has manufacturing plants for both PDP and LCD in Nanjing, in East China's Jiangsu Province.

Meanwhile, LG is reportedly to launch projectors and laptops in China this year. Currently it is the world's No 1 CD-ROM vendor.

The global sales revenue of LG Electronics this year is expected to reach US$32 billion, and that generated from the China market is expected to be US$7 billion, said Kim Ssang Su.

Source: China Daily