LG G3 – Deadly race

The G3 will enrich Google, no one else. 

• LG has released another update to its flagship that will ensure that competition in Android will be faster, harder and more painful.
• The G3 has a 2.5Ghz Snapdragon 801, a 5.5” quad-HD display with 538ppi, 13mp camera, Image stabiliser, dual flash and so on and so on.
• It is a worthy competitor to the Galaxy S5 and the HTC One M8.
• Thanks to its deal with Google (see Samsung & Google – Gorilla War), the Galaxy S5 has shipped without Samsung’s ecosystem meaning that it too really only competes on specification with its rivals.
• It is here that the problem becomes obvious.
• These devices compete against each other almost solely on hardware specification creating a deadly race to the bottom in terms of device price.
• This will ensure that unless volumes are massive, profits will remain very low.
• The Android market remains a brutal cutthroat environment where no one is going to make a decent return unless it can get a market share in the smartphone market of more than 10%.
• This means annual volumes in excess of 110m units and only Samsung is shipping more than that number.
• Hence, profitability in this market is likely to remain dire with 3-4% operating margins in the best instance.
• Samsung should see good profitability this year but this is going to start to rapidly erode as it has ceded all its ecosystem ambitions to Google. (see Samsung & Google – Gorilla War)
• The only real winner from this launch and the Android market is Google which through its influence has ensured that its ecosystem, and only its ecosystem, will be available on the best specified devices offered to users at the cheapest price.
• This is why RFM forecasts that Google will earn $6.1bn in revenues from Android devices this year growing to $11.6bn in 2017E.
• The Android makers are busy fighting each other for share but it is Google that is really bleeding them dry of profitability.
• Google remains the only stock one should look at in Android and holdings in any Android handset maker should be sold off to finance a position increase in Google.