Will LG, HTC and Sony Exit U.S. Smartphone Market?

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Near the rear of AT&T (NYSE: T) and Verizon Wireless retail stores sit smartphones like the HTC Trophy, the LG Vortex and Sony Experia. These usually sell for less than high-end Samsung smartphones and the Apple (NASDAQ: AAPL) iPhone, which is so popular that it has display cases of its own. HTC, LG and Sony (NYSE: SNE) may be unable to fund their effort to remain in the U.S. market, and they should not try to.

Nokia (NYSE: NOK) likely will try to keep hold of market share in the United States, although there are rumors that the company might be sold and broken into parts. Nokia at least has the substantial support of joint venture partner Microsoft (NASDAQ: MSFT) and its marketing machine. Research In Motion (NASDAQ: RIMM) has to fight for share in America. BlackBerry sales are nearly its only business. If it loses in the U.S., its struggle to stay relevant in the sector falls apart, despite its claims it can survive on sales outside the U.S. Motorola might have lost its appetite for its domestic market because of flagging sales, but new parent Google (NASDAQ: GOOG) has nearly unlimited resources to keep Motorola smartphones in the competition for a leading role in the American market for years.

Smartphones are only a part of the operations of Sony and LG. LG is the second largest conglomerate in South Korea. Sony remains, despite its struggles, one of the biggest consumer electronics companies in the world. The two Asian companies can do well overall without smartphone sales in the U.S. HTC is another matter. It almost has to compete in the U.S. market to remain a success, although it can probably survive with sales in Asia.

U.S. business history books are filled with stories of companies that had no chance to compete against larger or more well-funded rivals. But the markets in which they tried to be successful were so large or fast-growing that these firms would not give up the hope, which was very modest, that eventually they might have enough sales to justify costs. The auto industry has a long history of this habit. Brands like Pontiac and Saturn have disappeared completely. Banks and brokers have tried to muscle into America. The best recent example is huge Japanese investment firm Nomura, which nearly was driven out of the U.S. by domestic and European banks. China’s massive telecom infrastructure provider Huawei has tried to enter the American market for years, because it believes it can compete with firms like Cisco (NASDAQ: CSCO).

Sony, LG and HTC will never make money in the U.S. Apple showed that its position continues to grow as it announced earnings and iPhone sales numbers. Samsung has made a very strong claim to be the second-place provider. For many of the rest of the smartphone firms, to remain too long is only a way to lose billions of dollars.

Douglas A. McIntyre

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