By Jin Hyun-joo

LG Electronics' chief executive Nam Yong said on Wednesday that LG's main competition was not Nokia, but smartphone makers Apple and Research In Motion.

His remarks show how eager the No. 3 handset maker is to raise its profile in the smartphone market.

LG suffered falling sales in North America, one of its key markets, in the third quarter because of the expansion of the smartphone market led by Apple and Research In Motion.

Despite their leading positions in the handset industry, LG and its Korean rival Samsung Electronics have a limited profile in the rapidly growing smartphone market.

The two companies hold a combined share of less than 4 percent in the global smartphone market, even as their total share in the handset market tops 30 percent, according to IDC and Shinhan Investment Corp.

Some analysts said their failure to expand into the smartphone market would limit their growth. The smartphone market is expected to grow and account for 20 percent of the total handset market next year, from 16 percent this year, according to Gartner and Shinhan Investment Corp.

Korean handset makers are closely working with operators to boost their weak smartphone sales and better compete with Nokia, Apple and Research In Motion. They have also launched smartphones powered by various operating systems including Windows Mobile and Android.

"Apple has its own smartphone business model, which is not welcomed by wireless operators," said Jay Yoo of Korea Investment & Securities.

"Samsung and LG have no choice but to cooperate with operators ... It is an inevitable choice, but not a bad one."

LG says it will spend heavily to develop competitive smartphones.

"We plan to release about 10 smartphones powered by Windows Mobile next year," an LG spokesperson said, adding that the company has not decided on how many smartphones it will roll out next year.

He said LG had previously focused on the Windows Mobile operating system, but that it is now focusing on both Windows Mobile and Google's Android operating system.

"Our smartphone OS strategy has changed," he said. The company plans to expand its Android phone line-up starting from the launch of its first Android phone this year, he said.

Samsung, the world's No. 3 handset maker, also seeks to take on Apple and Research In Motion in the smartphone market, in which the Korean company holds a 2.7 percent share.

Samsung has introduced a series of new Omnia smartphones in September, and plans to double the number of its smartphone models next year.

However, Korean firms lag behind their bigger smartphone rivals in terms of content, which is critical in the smartphone business.

iPhone's huge success was largely driven by its App Store, which offers hundreds of thousands of applications including music and games. To boost their software and services, Samsung and LG have launched their own applications stores this year, but the number of downloads available is far below that of App Store.

Competition is fierce in the smartphone market, with not only handset vendors but PC makers seeking to grab a piece of the market.

"The performance of Korean handset makers in recent years was surprising, and the outlook for them is also bright. But to become a truly strong player in the handset industry, they should have smartphones that compete with or outdo Apple's iPhone and Research In Motion's Blackberry," Shinhan Investment Corp. said in a report released yesterday.

The report noted that Apple and Research In Motion posted operating profit margins of around 20 percent, while the operating profit margins of Samsung and LG hovered around 10 percent in the second quarter.

Although Apple's revenue is only one-quarter of that of Samsung's handset division, its operating profit is nearly half that of Samsung, according to the report.

hjjin@heraldm.com

--The Korea Herald/ANN