Market Insight

LG's modular G5 smartphone & smart accessories will energize channel partners with new profit opportunities

February 21, 2016

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At MWC 2016, LG announced a large range of new smartphone and accessory hardware. Notable features include:

- G5 smartphone: Unusual modular expansion capability; built-in very wide angle 135 degree camera; Qualcomm Snapdragon 820 chipset; removable battery; micro SD card slot.
- LG Cam Plus module camera grip, with extra battery capacity for the G5.
- LG HiFi Plus with Bang and Olufsen play audio module with 32bit DAC.
- LG Playground - A hardware ecosystem to encourage third party support for its "Friends" accessories.
- LG Cam 360 : 360 degree VR camera accessory, with dual 16MP camera sensors for photo or video usage.
- LG 360 VR headset
- LG Rolling Bot - a smartphone remote controllable device.
- LG Smart controller - a smartphone mount, to enable easy drone control.


Our analysis

IHS believes LG must take radical steps such as these to make its smartphone business stand out, because unless LG succeeds with the G5, VR camera and smart accessories, on LG's old trajectory IHS forecasted LG's smartphone shipments would decline 3% in 2016. 

LG is no longer a smartphone leader, it's now a mere challenger smartphone maker, which is under pressure from many the rising Chinese OEMs, most notably Huawei. In 2015, LG's share of global smartphone shipments was just 4%, to grow this significantly LG needs visibly different smartphone products. With this range, LG will definitively differentiate from the competition.

G5's modularity delivers real differentiation for LG now 

Key to LG's differentiation will be its modular smartphone hardware, not VR. No other current smartphone maker has anything similar. Importantly, the modular smart accessories offer LG ways to generate profits adjacent to the commoditizing smartphone market. But to maximize this opportunity, LG is smart to embrace third party support for its modular hardware with LG Playground. LG should mimic Apple's hardware licensing program -  "Made for iPhone" approach - to generate additional revenues, and also benefit from those third parties' own marketing spend.

Smartphone maker differentiation with VR will be impossible in 2016

VR will be an impossible area for smartphone makers to differentiate from each other in 2016, because IHS expects all leading smartphone makers to offer VR products or be compatible with VR through wide software support. But VR cameras and headsets offer today's smartphone makers the ability to explain to consumers why they need to buy a new smartphone. In a maturing smartphone market, smartphone makers are competing as much with their previous selves and older products, as they are with each other.

Including a 135 degree built-in camera will be a differentiated feature, at least for a time, compared with other smartphone makers. All top five ranked cameras used on Flickr are smartphones, demonstrating how important smartphone cameras are for consumers. LG's external 360 degree VR camera will also help market the benefits of its own new flagship smartphone which offers many of the same wide angle VR-style benefits.

Driving the smartphone replacement cycle is harder than ever

Many of the smartphones from 2014, 2013, or even 2012 are still in active usage and their owners believe they are "good enough". LG must convince those users, now is the time to upgrade. Smartphone makers must understand in detail the characteristics of the active installed base of smartphones, in order to speed the handset replacement cycle and sell more smartphones now.

LG has tried hardware innovation many times before, but to date its had little impact, even where it has been ahead of the curve as it was with a rear mounted fingerprint sensor in 2015's flagship G4. In 2015, LG's handset business shipped 59.7m smartphones, just half a million up on the previous year. Yet, the rear position fingerprint sensor was a good choice which has now been copied in Huawei's Nexus 6P, and LeTV's Snapdragon 820-powered flagship, among others.

LG will energize retail and operator channels with this range

LG's Friends accessories will be a good way for LG to drive greater visibility through both retail and operator channels, because mobile operators are always looking for new ways to sell cellular connections and enjoy the margins from smartphone cases and other accessories. 

IHS previously identified a "Modular Mobile" trend in 2015, this is now accelerating fast

IHS identified "Modular Mobile" as one of the trends of last years' MWC. This trend is accelerating this year. The smartphone is increasingly the hub for consumers' digital lives. And, because of the challenges of generating profits from smartphone hardware alone, smartphone makers are increasing their expansion into adjacent smart accessory markets.

In the future, all devices will be connected, that is a given. What will be important is how smart each device becomes because that impacts the price, electronics needed, and the business model. As devices become smart, hardware makers must adjust to a world where software and third party support is critical. Smartphone makers are on the leading edge of this disruption because of their experience with the shift from connected dumb phones to smartphones.

Smartphones will become even smarter

Assuming the final prices of these smart devices are affordable, if this new LG hardware range does not change the fortunes of LG's business, then it will be time for all leading smartphone makers to accept commoditization, switch strategy, and reduce their research and development spend. But IHS expects the smartphone era will continue powered by increasing innovations and ever smarter smartphones which extend their role in consumers' digital lives.



South Korea USA
LG LG Electronics
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