There are other imitators as well. Nokia recently rolled out its award-winning 8800 cell phone, while Samsung introduced three super-slim phones under its "Ultra" line. "I don't think LG is out of the woods yet," warns Greg Roh at Korea Investment Securities.

LG claims Chocolate is more than fashion candy. "Just as Apple's iPod created a new culture among users of digital music players, Chocolate connects to emotions of its users," says Cha Kang Heui, LG's chief handset designer. Unlike Razr or Nokia's 8800, that ostensibly demonstrate high-tech features, Chocolate's designers sought extreme minimalism to make it look like a black chocolate bar, not a phone.

LG incorporated other features to give the phone a special character. Slide the phone open and its touch-sensitive keypad glows red and its LCD screen—which sleeps when not in use—suddenly light ups. "This is designed to give users emotional satisfaction with a surprise," Cha says.

European reach
Although it is only 16.5 mm thick and weighs 88 grams, it packs a 1.3 mega-pixel camera that also doubles as a camcorder and an MP3 music player. It boasts 128 megabytes of built-in memory and Internet access. "The Chocolate phone is a more playful, narrative phone," says Peter Zec, initiator of the Reddot Design award in Germany. "It's very charming. I can imagine teenagers really liking it."

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LG expects the Chocolate phone's popularity will help expand its reach in Europe, where sales are less than half those in the U.S. A latecomer to GSM technology—the standard in Europe which is the biggest phone market—it needs to appeal directly to users there. Especially because many European consumers buy phones on the open market rather than through a carrier.

This year, LG seeks to sell 70 million handsets, with GSM phones making up more than half of the total. The company sold 55 million phones last year. It's vital for LG to boost its European presence if it is to achieve its target of edging past either Samsung or Motorola to become the world's No. 3 by 2008 or 2009.

Proving time
The goal appears to be a long shot. In the first quarter of this year, LG's global market share was 6.8% against its nearest rival Samsung, which held 12.7%, according to researcher Strategy Analytics. Industry leader Nokia had 32.8% while second-ranked Motorola had 20.1%. Industry observers believe LG will have to increase its market share by a few percentage points every year if it wants to narrow the gap with Samsung (see BusinessWeek.com, 7/13/06, "Samsung's High Design, Lower Profit Cell Phone Strategy").

Perhaps more important, LG will have to control costs to narrow the profitability gap with its rivals. "Even if the Chocolate phone is a success, LG has a lot of proving to do," says Yoo Jung Sang, chief investment officer at fund manager PCA Investment Trust Management. "LG has no cost advantage in a low- to mid-end market against Nokia and Motorola, while it is lagging behind Samsung in the premium segment."

LG execs say the Chocolate is only the beginning of a series of stylish handsets it hopes to launch in the years ahead. "It is just the first model in our premium Black Label series that will be both fashionable and full of multimedia functions," Bae says, adding the next "big" model will be released by early spring. The company's immediate target is to grab a 10% global market share and a high single-digit profit margin next year. If Chocolate continues to delight, LG may be a step closer.

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