Plausible Competitive Scenarios Smartphones Market

AGENDA

A. Current Industry Structure

B. Industry Drivers

C. Future Scenarios

D. Implications for LG

Current Industry Structure: AS IS

• The urban market is already seeing saturation in mobile penetration with more than 88% penetration, however rural market still has low mobile penetration

• The mobile handset market in India is the second largest market after China. The market is expected to grow at a CAGR of 11.8% from FY 2009 to FY 2016.

• Nokia continues to be the leading market participant but there has been a decrease in market share over the last year.

• Indian manufacturer Micromax had the highest shipments in FY 2010 after Nokia and Samsung.

• Market is fragmented with both Global, Domestic, Low Cost players, with total number of players ballooned to 68 in 2010Nokia, Samsung, Sony Ericsson, LG, Philips, Sharp, Panasonic, Toshiba, Haier, Sanyo, Vizio, Micromaxx, Lava, Karbon, Maxx, INQ , Videocon, BPL, ONIDA, TCL,

• Market Share(%) of major players Q3 201036.3

33.2

8.2

7.3

15

Nokia

Samsung

Micromax, Spice, Karbon, Lava

G’FiveOthers

AGENDA

A. Current Industry Structure

B. Industry Drivers

C. Future Scenarios

D. Implications for LG

Multiple forces are shaping the future of handsets & pocket devices*

• Mobile broadband technologies(HSDPA, LTE) are emerging as critical necessities• Telcos are aggressively deploying BB pan INDIA• 3G adoption would trigger sales of smart devices

Broadband Technologies

Pocket devices : Mobile handsets: smart phones ; PDA’s, Tablets

Digitization• Media & entertainment Industry becoming big with DTH,

IPTV, Broadband technologies penetrating

• Use of video and other data services will grow as internet data traffic multiples and mobile broadband consumptions increases• iPhone triggers consumption of Apps and others followData Traffic

• Communications and content will become seamless with open access enabling interaction with any device, service providers• Access of same content with TV, Phone, Tablet• Consequently increasing number of players offer combination of products

Convergence

• One in five phones and laptops sold will be a Smartphone and a Tablet resp; devices with mobile internet access Smartphone sales expected to reach more than half a billion by

2014 Strong growth rates are estimated

~26% CAGR from 2009-2014 Low Cost Tablets have started to slowly penetrate the market

Mobile Pocket Devices

Both supply & demand side drivers are pushing adoption of mobile devices , however market restraints giving challenges…

Pocket devices : Mobile handsets: smart phones ; PDA’s, Tablets

Driver Next 3-4 yearsConsumer Income increasing HighLowering of Price points (ASP)/Cost of Material reducing HighIncreasing local manufacturing base in INDIA HighReplacement market HighAdoption of 3G services MediumGovernment investing heavily on BB HighUrban Market saturated & ready for next-gen devices & ultra-low cost devices; Untapped Rural market

High

Inhibitor Next 3-4 years

Unequal & high VAT rates HighRural network coverage low HighRegulatory hurdles to import from China LowData Charges by telecom players MediumNetwork quality High

AGENDA

A. Current Industry Structure

B. Industry Drivers

C. Future Scenarios

D. Implications for LG

Along with industry drivers, number of uncertain critical variables will shape future industry scenario

Economic& Regulatory

Uncertainties surround critical variables…

Fast BB Availability

Device to Device Communication

Demand for Data Services

Newer Verticals in Digitization

Unified Communication

Mobile Bazaar

Clash of Leaders

Rise of a CE Patron

… along drivers around Dominant Themes

To provide dimension that defines possible scenarios

Addressable Market

Market Growth

1

2

3

In face of favorable industry drivers many kinds players would push for their share in huge mobile opportunity

Size of the Bubble indicates Growth Aspirations, Readiness to Change

Capa

bilit

ies

to M

ove

wit

h Fa

st C

hang

ing

Mar

ket

Low High

High

LowEase to Change/Influence Market structure

Global

Low CostChinese

Domestic/Home Grown

• Global Players : 2 kind of players: Mobile Manufacturers only Apple, RIM,

NOKIA Players who have attained leadership position and are focused on only mobile business

CE Patrons: Players who have a diverse portfolio in Consumer electronic space

• Low Cost Players : 2 Kind of players Chinese players : Chinese handset

manufacturers entered India

Home Grown Players : Indian players leveraging china sourcing selling mobile handsets in INDIA

• Allied Players: Players from other industries like Telecom Players, DTH players have either entered in handset business or plan to

Global players like Google, IBM, Microsoft who are mainly platform players (Internet, Software) are creating ecosystem to be present across all CE devices

Allied

What is the competition doing and what is the competitor capable of doing?Pick 2-3 examples of key players likely to change the war game

What are the strengths and weaknesses of the competition?

What assumptions are made by the competitor’s management team?

Motivation Drivers

Competitors Assumption &

Perception

Past & Likely Future Moves

Competitors Capabilities

1 2

3 4

Drivers• Financial goals • Corporate culture • Organizational

structure • Leadership team

backgrounds• External constraints • Business philosophy

Future Competition Scenario - Framework

ACTIONS

DRIVERS

Illustrative Example : Global players :

Drivers Strategy• Be the world leaders in consumer• Electronic• Take an increasing share of the• consumer’s electronics budget• Maintain a higher than average level of profitability• Be an innovation leader• Have a strong global presence

• Focus on the top of the market• Emphasize good design and high quality• Maintain high margins• Promote industry standards in order to expand the market• Promote proprietary standards where they provide the opportunity to create consumer lock-in • Design products for regional markets

Assumptions Capabilities• Consumers’ disposable income will• continue to rise worldwide• Consumers will spend a growing portion of their disposable income on Electronics• Consumers want both functionality and style, although regional tastes Vary• Style and quality are differentiators that lead to sustainable higher Margins

StrengthsStrong reputation for good qualityGlobal distributionIncreasingly integrated product lineStrong market share in all regions of the globeWeaknessesIncreasingly high manufacturing cost gapCompetenciesExcellent product design capabilities

Source:

Types of players are vying for their share in the mobile opportunity

Likelihood

Rationale

Global

Platform players Google, Yahoo, • With Google’s Nexus & Android platform & it has built a strong ecosystem to make Google platform on all devices

Software Technology players Microsoft, IBM, • Continue to strengthen mobile services to stand in front of RIM, Apple,

• With its successful game console business Xbox & necessary mobile platform Windows 7, and already launched smart phone Kin

PATRONSConsumer electronic players Godrej,

WhirlpoolExisting handset global ODM’s Nokia,

Motorola, SS• Motorola plans to enter Tablet PC

business• Already globally a strong player in

mobile handsetLow Cost Low Cost mobile handset

playersMicromax, Lava, Karbon

• More than 30 such players in INDIA, but only 2-3 players are going to marking it big

Allied

DTH players Tata Sky, Dish, Videocon

• Players like Videocon already in telecom, DTH space might enter

Fixed line players BSNL, MTNL, • Not likely to enter device business as mostly fixed line incumbents

Retailers Croma • Players like TATA might want to leverage their CE Retail infra with DTH capabilities

Mobile Carriers MNOP’s , MVNOP’s

Airtel, Reliance, Virgin Mobile

• RIL plans to pick stake in Notion Ink Indian tablet PC manufacturer

Source:

Types of players are vying for their share in the mobile opportunity

Likelihood

Rationale

Global

Platform players Google, Yahoo, • With Google’s Nexus & Android platform & it has built a strong ecosystem to make Google platform on all devices

Software Technology players Microsoft, IBM, • Continue to strengthen mobile services to stand in front of RIM, Apple,

• With its successful game console business Xbox & necessary mobile platform Windows 7, and already launched smart phone Kin

PATRONSConsumer electronic players Godrej,

WhirlpoolExisting handset global ODM’s Nokia,

Motorola, SS• Motorola plans to enter Tablet PC

business• Already globally a strong player in

mobile handsetLow Cost Low Cost mobile handset

playersMicromax, Lava, Karbon

• More than 30 such players in INDIA, but only 2-3 players are going to marking it big

Allied

DTH players Tata Sky, Dish, Videocon

• Players like Videocon already in telecom, DTH space might enter

Fixed line players BSNL, MTNL, • Not likely to enter device business as mostly fixed line incumbents

Retailers Croma • Players like TATA might want to leverage their CE Retail infra with DTH capabilities

Mobile Carriers MNOP’s , MVNOP’s

Airtel, Reliance, Virgin Mobile

• RIL plans to pick stake in Notion Ink Indian tablet PC manufacturer

Bipolar Demand from Mature market & untapped market will lead to new entrants & consolidation

Strong GrowthFrom Untapped

Rural Market

Fragmented market players with new entrants from allied industry & consolidation/M&A

within low cost handset incumbents

Fragmented market with many players

Strong ReplacementGrowth

From High IncomeUrban

Consumer

Mobile Bazaar

Rise of CE Patron• Players like Samsung or

Panasonic with deep pockets & very aggressive in growing segments(Smart phones, Tablets)

Clash of Leaders• Paradise lost for Nokia

with continuous efforts to make MeeGo strong

• Google ruling the Open/free handset OS will collaborate with device maker to lead

• Microsoft already

• Not in near future, but Global leaders like Apple entering niche segment in Urban India

• Other Global leaders Nokia, HTC with differentiating strategies to tap bipolar demand

• Top 3 Nokia, Motorola, SS continue together to lead

• However low cost players Micromax, Lava reaching scale in low segment

• Allied players entering market Dell

• Followers like LG facing margin pressures

Scenario 1 Mobile Bazaar:

Scenario Characteristics

Industry Structure

As Is Future• Currently fragmented

market with many players• Nokia is still the

leader (35%) with gradual shrinking market share

• Many Handset players , WITH NO 1-2 BIG PLAYERS Leveraging open platforms like Android, ODM’s from Taiwan & China come with chipset vendors Qualcomm’s & Mediatek’s to be able to replicate economies of global leaders.

Gainers & Losers

• Low cost players are main gainers

Players like Samsung who are moving aggressively with market developments to collaborate will gain

Scenario Drivers

• Huge Demand across consumer segments due to rise in income across segments• Google’s free open source Android platform gives power to

low cost ODM’s/OEM’s• Huge demand in Pocket devices encourages platform,

software tech players

Likely Realization

• This is less likely to happen in mature markets, but in developing, emerging markets where brands have not made any significant impression• Untapped rural market will be opportunity to sell ultra low

cost handsets provided network access is available• The strategic success factors will vary, particularly between

mature markets and growth markets• In growth and emerging markets such as India following

success factors will apply: Product design, user interface, pricing. Ability to adapt and imitate successful strategies fastAbility to deliver large volumes flexibly.

Scenario 1 Mobile Bazaar:

2010

Global Players : 78%

Low Cost : 22%

49.52

18.48

6.52 2.63

NokiaSamsungLGOthers

Others includeSony Ericsson 1.69%Motorola 0.5%Motorola 0.37%Apple 0.05%

CURRENT: 2010

FUTURE : 2015

7.31

7.42

5.84

1.43

Micromax

GfiveSpiceMax

KarbonLavaVidecon Onida

Others

Scenario 2 Rise of CE Patrons

Scenario Characteristics

Industry Structure

As Is FutureCE players currently except Samsung are not aggressive in mobile space

Consumer Electronic player like SS emerge as leaders. Portable devices like Tablet PC’s Smart phones would connect with other CE devices. CE player is present across categories to leverage scale

Gainers & Losers

• Strong consumer electronic players with robust position across categories & specialist in one area• Nokia would lose• Low cost players would struggle

Scenario Drivers

• Interoperability through CE devices connecting TV, Mobile, Fridge• Cloud computing & Mobile would be the new

remote control• The mobile BB is the next global computing

platform

Likely Realization

This is most likely to happen if players like Google colloborate with Samsung, in case if Google chooses to play only in the platform game & let a device maker rule

Scenario 2 Rise of CE Patrons

2010

Global Players : 78%

Low Cost : 22%

49.52

18.48

6.52 2.63

NokiaSamsungLGOthers

Others includeSony Ericsson 1.69%Motorola 0.5%Motorola 0.37%Apple 0.05%

CURRENT: 2010

FUTURE : 2015

7.31

7.42

5.84

1.43

Micromax

GfiveSpiceMax

KarbonLavaVidecon Onida

Others

Scenario 3 Clash of Leaders Most Likely to happen

Scenario Characteristics

Industry Structure

As Is Future• Global players like

Apple, Google are not present in India. But both has plans to do so• Nokia, Low cost

players , Samsung are ruling the market

• Smartphone's & Tablet PC would compel new market leaders. Google, Microsoft not in near future to play big in Indian market But continue to create strong favorable ecosystems.

• However In next 3-4 years Apple/Google would emerge as leaders along with existing global leader Nokia

• Demand for Mobile Internet would help Google leverage its strong presence in platforms & with Android Google plans to be present on all CE devices

Gainers & Losers

• Nokia is still ruling though share is dropping • Samsung is moving

up the ladder , but low cost players are collectively giving pressure

• Nokia would lose• Apple, Google, Microsoft would gain• Samsung would gain• Applied players would enter• Low cost players would continue to juggle between

positions with few M&A’s

Scenario Drivers

• Current BB penetration is very low in INDIA

• Mobile Internet would be next megatrend through Pocket devices • Internet Penetration to increase in INDIA• Interoperability through CE devices connecting TV, Mobile,

Fridge• Open free Platform are readily accepted by OEM’s, ODM’s• Google is strong in Web

Likely Realization

• Variability is high in this scenario as it largely depends on the Broadband infrastructure• Also if player like Samsung partners with Google for device

& cloud computing platform it can win the market jointly.

Scenario 3 Clash of Leaders

2010

Global Players : 78%

Low Cost : 22%

49.52

18.48

6.52 2.63

NokiaSamsungLGOthers

Others includeSony Ericsson 1.69%Motorola 0.5%Motorola 0.37%Apple 0.05%

CURRENT: 2010

FUTURE : 2015

7.31

7.42

5.84

1.43

Micromax

GfiveSpiceMax

KarbonLavaVidecon Onida

Others

Potential scenarios have different impact on various players

Low Cost Players

Allied Players

Global Players

1 2 3

CE Patrons

• Will be able to compete on price & differentiation because of size• Would be paradise lost for

players like Nokia

• Within this group followers would get Brand & Cost pressure from Japanese & Chinese players resp.

Mobile Bazaar

Rise of CE Incumbent

Clash of Leaders

• They will mostly play in low cost segment and rural markets in future

• They will mostly play in low cost segment and rural markets in future

• Take advantage of vast appliance portfolio to leverage convergence• SS or Panasonic have

chances to gain

• Face huge margin pressures if not change strategy

• If continue to innovate would sustain in market

• Would play niche or partner with strong CE player

• Struggle for share in urban market but low cost players will stick to low segment

• Face huge margin pressures if not change strategy

• Would play niche or die

• Likely M&A, consolidation leaving only 1-2 strong players

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