A strong portfolio of phones helped LG Electronics' sales grow at almost four times the annual industry average in the first quarter, while Samsung Electronics expanded at twice the rate, data from Strategy Analytics showed.
But the Korean companies could hit a speed bump in the coming months as the progressive global rollout of Apple Inc's third-generation (3G) iPhone shaves a few percentage points off their profit margins and crimps sales of their top models, analysts said.
"You don't need an analyst to tell you that a low subsidised price for the most-anticipated gadget ever is going to move huge amounts of iPhones in the finite number of channels through which they'll sell," said Yankee Group analyst John Jackson. "It will hurt the Koreans in key high-end segments."
Rivals Motorola and Sony Ericsson are also expected to face a tough time against the next-generation iPhone which melds a phone, iPod media player and web browser, and offers faster Internet access on advanced wireless networks.
It will sell for as low as $199 (Dh730) when it goes on sale from July 11, half the price of the original model, thanks to heavy operator subsidies.
"Now is the time for Korean makers to trim the fat from cellphone prices – how can their $700-$800 phones compete with the iPhone?" asked Daiwa Securities analyst Jae Lee.
Samsung has four sleek touch-screen phones – the Omnia, the Haptic, the F490 and the Instinct – lined up to take on Apple. LG offers three touch-screen models – the Prada, the Viewty with a five-megapixel camera, and the Voyager.
Frost & Sullivan analyst Daniel Longfield estimates Samsung and LG's iPhone lookalikes could suffer up to a 20 per cent fall in sales volumes competing head-to-head with Apple's device.
"If a carrier sells both the iPhone and Samsung or LG's models, you would expect a solid 10-20 per cent decline in those model sales," Longfield said.
Handset profits for both Samsung and LG probably peaked in the second quarter and are likely to fall in the second half, analysts said.
Operating margins at Samsung's telecoms division rose to a strong 16 per cent in the January-March quarter, from 11 per cent in the fourth quarter. LG achieved a handset operating margin of 14 per cent on a global basis in the first quarter, versus 8.8 per cent in the previous quarter.
"Samsung and LG's margins in the second half will be 1-2 percentage points lower than the first half as they cut prices of their high-end models," said John Park, a Seoul-based analyst with Daishin Securities.
Price cuts to combat the new iPhone have already begun. Samsung's Instinct, sold by Sprint Nextel Corp, will go for $130 with a rebate and a two-year contract later this month, down from earlier expectations of above $200.
LG's Voyager, sold through Verizon Communications Inc, was offered at $199 this month, after being launched at $400, and then later reduced to $299 with a two-year contract.
CJ Investment & Securities analyst Kim Ik-sang said he has cut his handset shipment and operating profit margin forecasts for LG this year by 4 percentage points.
"Before the new iPhone, I expected LG to sell 121.68 million phones – now my forecast is 116.8 million units. LG's North American market share will also take a hit," he said, cutting his 2008 US market share forecast to 18 per cent from 20 per cent.
But Jae Bae, President of LG's Mobile Communications division for Southeast Asia, told Reuters the iPhone was not a threat and would boost demand in the overall cellphone market.
"The iPhone appears to be targeting a niche segment in the market. We provide more choice in terms of our range of products," he said.
And Youngcho Chi, the senior vice president for Samsung's Mobile Communications Division, said the company was confident its Omnia touch-screen handset would enjoy strong demand.
Some analysts agree the threat of the new iPhone may be overstated in the short term.
"The Korean firms have done a good job of reacting urgently to the threat from Apple with their iClones, which offer credible and compelling alternatives to the iPhone," said Neil Mawston, a London-based analyst with Strategy Analytics.
Any market share loss to Apple by Samsung and LG in the United States this year would also be offset by gains from a weakened Motorola and Sony Ericsson in the rest of the world, said Mawston.
Motorola is most at risk, due to lack of a credible response to the iPhone and high exposure to the US market where Apple is strongest, while Sony Ericsson will be hurt by its reliance on a relatively narrow portfolio of Walkman music phones that compete directly with iPhone and Apple's iTunes music service, he added.
Strategy Analytics forecasts Apple will ship 11 million iPhones this year including 8 million 3G models. Apple had just 0.6 per cent of the global phone market in the first quarter.
Operators who do not have a partnership with Apple will be looking at Samsung and LG's touch-screen offerings as a response to the iPhone, which should help the Koreans sales.
"3G iPhone shipments will be limited in size this year and the impact will be small. But as the volume grows, the impact will become more visible next year," said CJ Investment & Securities analyst Song Myung-sup, who is maintaining his 2008 forecasts for Samsung's sales and margins.