When the going gets tough, the tough get going. But that doesn’t seem to fit in case of LG Smartphone business.
There comes a moment of truth for everybody. In the smartphone sphere, with their share getting heavily chopped for years on end, there’s only so much LG could take. And it seems that the company has reached a tipping point.
LG has officially confirmed that it’s considering leaving the smartphone market in 2022.
If LG CEO Kwon Bong-Seok’s internal memo was not proof enough, the latest developments have emerged which suggest that the South Korean giant is indeed dwelling on taking a step back from its smartphone venture.
Admittedly, there has been a fair share of back and forth around reports of LG’s exit. LG representatives having quashed previous such reports, have not moved to refute the news this time around. Basically, LG is weighing out downsizing its smartphone business, and all other options are on the table.
Whether that means withdrawing entirely from the smartphone market or a potential sell-off of business and assets are things that the company has yet to fully clarify.
While it has been a most prominent name globally, what are the factors behind such an unfortunate call?
Let’s look at how it all came crashing down for the company’s smartphone segment and what lies ahead for its future.
How it all came to head
The easy answer could be the stat that the company has stacked up an infamous streak of 23 consecutive quarters of losses.
Having accrued a massive pot of $4.5 billion in mobile losses, this should come as no surprise. Looking back, there are several key factors due to which the company has such ghastly honours to its name.
- Over the past few years, LG’s mid-range and flagship phones just haven’t been up to par. This has led to LG being consistently behind top-dogs such as Samsung and Apple, and have been consequently been less critically favoured than devices from Google and other Android OEMs.
- Software support has been an omnipresent issue for LG, to the extent that the company has become notorious for not updating its Android smartphones in a structured manner for years at a time. This has bled the company’s consumer interest globally and has failed to match the success of its other segments in the big-buck making countries like the United States and India.
LG’s last truly appealing release was more than half a decade back when the LG G4 was released in 2015. There have been a few cameos by models such as LG V60, LG Velvet, and even the wacky LG Wing, but none of them has come remotely close to challenge the sales of Samsung, Apple, or the rise of other Chinese smartphone makers.
The rise of the Chinese giants in the smartphone market is another facet. Having existed for close to two decades in the business, the company is facing harsh realities that apart from Apple Inc. and Samsung Electronics Co., the industry now revolves around lower-cost Chinese manufacturers.
This is evidenced by the fact that the multitude of Chinese brands – Xiaomi, Vivo, Oppo, Realme, and everybody else, accounted for a staggering 57% combined market share in 2020, according to Strategy Analytics. Contrast this with a decade ago, when Chinese phone makers didn’t even crack 1% of global sales, and now have gone on to lead the business, having first overtaken the rest of the world with shipments in 2017.
To wow the consumer base once again, LG teased the Rollable device at the Consumer Electronics Show last week. Packed with a “unique resizable screen” that extends from a phone to become a small tablet display, LG had promised its Rollable device’s launch in 2021. (Too little too late?!) But the company’s reconsideration of its smartphone business means even that release could be nipped in the bud.
To put it politely, LG just failed to gain any sort of traction in the smartphone market.
Now that we’ve seen what led to water reaching boiling point, let us look at how the future options could branch out for the Seoul stationed organization.
How the scenarios could play out
The facts are that the company has stayed profitable on the back of robust sales from its home entertainment and consumer appliances units. Now that the company is going through such a dire scenario in its smartphone segment, LG’s preferred option is to remove itself from the premium smartphone market and focus solely on low-to-mid-end devices, according to a company insider.
While the possibility of a sale is facing some push back, at the moment planned releases of flagships, including the LG Velvet and LG Wing, as well as older devices like the LG V60 ThinQ, LG G8X ThinQ, and the upcoming LG Rollable are all in the grey from a launch perspective.
A slight rejig in the workforce could be on the cards though. CEO Kwon Bong-Seok assured his employees that no firings would take place, but up to 60% of the staff could be absorbed elsewhere. The remaining 40% could well continue to remain in the smartphone arm, all subject to if the company looks to downsize and focus on just flagship models.
Even though no overt interest has been displayed on LG’s behalf, the potential sale of the company is a mouth-watering prospect for their rivals. Let us glance also at the reports of potential suitors who are doing the rounds.
Agreed, the option of sale is not the favourite, but again, CEO Brian Kwon’s statement carries some whiffs and hints.
“In the global market, competition in the mobile business including smartphones has gotten fiercer. LG Electronics believes we have reached the point where we need to make the best decision about our mobile phone business, considering current and future competitiveness. Regardless of any change in the direction of the smartphone business operation, the employment will be maintained, so there is no need to worry. The company is considering all possible measures, including sale, withdrawal and downsizing of the smartphone business.”
On the whole, the letter seems quite indicative that LG’s smartphone business would be amenable to a worthy proposition. However, other companies, sensing the vulnerability of the South Korean behemoth, have already thrown their hats in the ring for LG’s lagging division, per reports.
According to analyst Ross Young, the leading bidder at the current moment is Vietnam-based Vingroup, which sells smartphones under the VinSmart brand. Automaker Volkswagen has also emerged as a challenger because of potential affinities related to the electrical equipment business.
Social media titan Facebook has put its hand up and so has Google, the creator of Android and one that has previously owned Motorola in the smartphone business. Display manufacturer BOE, the supplier of flexible OLED displays for the upcoming LG Rollable, is also in the fray.
All things considered, if LG really trudges down this path, an announcement of the sale could be in the works as early as March.
Whatever happens, the “cold, hard look” is necessary for the company to help revive its flatter-to-deceive smartphone segment, or do away and pump assets elsewhere to turn a profit. Facing a fork, the impending decision would be huge in determining the path that the company sets about for itself. So is this a Sayonara or a time of reflection will only be answered in the coming time.
Stay tuned here more updates.