Cell Phone price wars coming?


This morning LG Electronics reported its earnings and as expected they beat expecations, mostly due to strength in the LCD and cell phone handset markets. For the second quarter net income was about $427 million. While the company had forecast total handset sales of about 12 million for the quarter, the actual sales came in around 9.94 million, inline with analyst expectations. The company forecast that for the third quarter it expects to sell about 11 million handsets. LG had a limited footprint in US till recently. It only sold CDMA handsets but has recently started hawking GSM phones in the US and that could help the company meet its next quarter target.

Profits however will come under pressure. Why? Because last week Nokia said that its earnings per share are going to take a hit as it tries to regain market share using what else – the time tested practice of price cuts. Samsung Electronics Co., the world’s third- largest handset maker, said on Friday that Nokia’s price reduction may “influence badly,” reports Bloomberg. Reuters reported that profit margins at the Sasmung handset business slumped to 16% from 26% in the recent quarter due to tougher competition and higher marketing expenses especially in the US market. Today, LG CFO Kwon Yeong-Su said, It’s all up to Nokia and Samsung.” He said margins may fall, depending on how much Nokia and Samsung slash their prices.

With the Chinese handset markets getting increasingly aggressive, and newly resurgent Japanese handset makers like NEC eyeing the global markets, it looks like the happy days are over for handset makers. Especially the big three

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