Software key hurdle for Korean smartphones

Software could become a stumbling block for the ambitious plans of South Korean mobile phone heavyweights Samsung and LG Electronics to win a bigger share of the booming and lucrative smartphone market.

Samsung Electronics' and LG's new smartphone models will hit the shelves over the next few months, boosting their volumes.

But few believe they will have a dramatic impact on a market turning towards software, the key operating engine within a device which can have a dramatic impact on driving extra cash flow from consumers and boost marketing opportunities.

"I don't have expectations for their software," said Daiwa analyst Jae H Lee. "Samsung and LG are hardware companies. They can't change that overnight."

The entire cellphone industry has started to focus on services and software since Apple and Google entered the higher end of the market – a major challenge for Samsung and LG.

The world's No2 and No3 handset makers have seen those consumers seeking web and other PC-like functions increasingly turn away from their feature-heavy phones to more advanced smartphones from top vendors Nokia, Apple and Research In Motion (RIM).

LG saw its phone business profit margins falling close to zero in the December quarter as the firm had to spend heavily on marketing of its simpler models. Samsung's margins held up better, but they are still far behind those of RIM.

Shares in Samsung and LG trade at 13 and eight times of their estimate earnings, respectively. The multiples compare with 13 of Nokia, 17 of Apple and 15 for RIM.

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