Will LG's Chocolate phone hit a sweet spot?

By Moon Ihlwan

updated 7:37 p.m. ET July 21, 2006

Has LG Electronics finally hit a sweet spot in the faddish mobile phone market? Ever since Motorola scored big with its ultra-thin clamshell fashion phone called the Razr, back in 2004, a sort of slim-is-in design ethos has gripped the handset industry.

Nokia and Samsung have unleashed their design talent on this segment, and now LG executives think they have a blockbuster in the making with the company's sleek Chocolate phone. "It is a breakthrough product for us," says LG Executive Vice-President Jae Bae.

The dark, rectangular Chocolate phone is certainly a head-turner, and LG definitely needs a winner to save its money-losing mobile phone business. The Chocolate garnered industry accolades such as the prestigious European 2006 Reddot Design and IF awards for its excellence in design and user-interface, and has been drawing a lot of orders from distributors. And the handset was recently ranked the best-selling mobile phone by Carphone Warehouse, Europe's biggest mobile phone retail chain.

Much-needed cash
In less than three months since its global debut in May, some 1.4 million phones have been sold in Europe, Asia, and Latin America. Another 500,000 have been sold in South Korea since its premiere there last November. LG, which is expected to launch the Chocolate in the U.S. come August, hopes the $500 phone will be a 10 million seller by the end of June next year.

If their hopes materialize, it would be a much-needed cash infusion for a company struggling big time with its handset business. On July 19, LG reported a $10 million net loss in the three-month period ended in June, thanks to troubles with its mobile-phone and flat-screen businesses (see BusinessWeek.com, 7/11/06, "LG.Philips LCD Swings to Loss in 2Q").

Its mobile phone business posted an operating loss of $3 million, which follows $32 million in red ink during the first quarter of 2006. LG argues the six-month loss was due largely to increased marketing expenses and investments and that the company will move into the black in the second half.

Next moves
"We have been building up muscles for growth," says Bae. He notes that LG emerged from virtual obscurity earlier this decade to become the fourth biggest handset maker—after Nokia, Motorola, and Samsung. "Now the Chocolate phone will give us a chance to make another leap forward," he predicts.

Some wonder if enthusiastic LG execs might be on a bit of a sugar buzz. "The Chocolate phone certainly has the potential to be a blockbuster, but this doesn't mean LG will be sailing for the next couple of years," points out Kevin Lee, telecom device analyst at Woori Investment & Securities in Seoul. The question, he adds, is whether the company can follow up with a succession of hit models to charge ahead in the fiercely competitive and ever-evolving industry.

Others note that it was Motorola and its Razr that really created the entire segment for slim phones, and the Chocolate is merely a variation on the same theme (see BusinessWeek.com, 12/5/05, "The Leading Edge Is Razr-Thin").

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