"In the Red for the 23rd Quarter" Will LG Electronics Abandon the Smartphone Business?

[경향신문]

Kwon Bong-seok, president and CEO of LG Electronics, sent an e-mail to employees on January 20 and said, “We are open to all possibilities as we review the issue,” on rumors of the company selling its mobile business. This shows that the company is indeed considering reorganization or sale to reduce the business. The e-mail appears to be an effort to calm the unrest by announcing that the company would retain the employees ahead of an important announcement, such as a sale or reorganization.

The mobile business of LG Electronics is at a critical crossroad because of the series of failures by the mobile arm and the reorganization of the business by LG Group chairman Koo Kwang-mo.

In the 2000s, LG Electronics mobile division dominated the international stage with its Chocolate phone and Prada phone, but the company failed to properly respond to the rise of the smartphone and began its downward journey. In 2014, the company sold more than 10 million units of G3, but there has been no other hit model since then. In the high-end smartphone market, LG falls behind Apple and Samsung Electronics, and in the market for cheaper smartphones, Chinese companies like Huawei and Shaomei has pushed LG back with their massive volume of products.

In 2019, LG Electronics stopped producing smartphones in South Korea and relocated the factory to Vietnam. The company increased the rate of original design manufacturing (ODM) and transferred the employees in the mobile business to other businesses, reducing the size of the mobile arm. Last year, it released Velvet and Wing as new innovative smartphones, but they were not successful in the market. As a result, the accumulated deficit has reached 5 trillion won as the company remains in the red for the 23rd quarter since the second quarter of 2015. LG ranks somewhere around tenth place in the world’s smartphone market with market shares of only 1-2%.

If the company decides to reduce or sell its mobile arm, this can be seen as one part of the business reorganization promoted by Chairman Koo since he took the helm in June 2018. LG may reduce and sell its unprofitable mobile business and concentrate on building artificial intelligence (AI), robots, electronics parts for cars, and electric car batteries as key businesses. Despite recent rumors that LG Electronics was selling its mobile business, the company had insisted that the rumors were groundless. But the sudden announcement this day that the company was considering withdrawing the business has led to speculations in the industry that Chairman Koo recently made the decision.

Inside the industry, the dominant view is that LG Electronics, rather than completely withdraw its mobile business, will sell or reduce its cheaper phone business while retaining its key models that display the company’s advanced technology, such as the rollable phone, scheduled to be released this year. Since smartphones play a central role as a controller of AI and Internet of Things (IoT), if the company completely withdraws from this field, it could lead to challenges in the future of its home appliances division, which is company’s key money-maker.

Chinese and Vietnamese mobile firms attracted to the technology of LG Electronics and U.S. information technology (IT) companies that want to expand from software to hardware are being mentioned as potential buyers. Other speculations include views that LG Electronics will sell its overseas factories in China and Vietnam, that it will directly produce only its key phones and leave the cheaper phones completely to ODM, and that it could combine its mobile division with its home appliances division.