When the going gets tough, the tough get going. But that doesn’t seem to fit in the case of LG mobile phone business.
There comes a moment of truth for everybody. In the mobile 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 exiting the mobile phone market. The news, however, has come much earlier than expected as the company was earlier considering giving another year to its mobile business.
In January LG CEO Kwon Bong-Seok’s internal memo hinted about the company’s intention and consideration towards leaving the mobile phone business worldwide. The latest developments suggest that the South Korean giant no more sees a viable growth opportunity in the mobile phone business.
The company has set a deadline of July 31, 2021 to bring done the curtain on its mobile business completely. However, the company would continue selling the devices till the existing stocks last. The Korean electronics giant has also assured all its customers about the support and service.
LG has decided to channelise its expertise developed in the mobile space towards other efforts including 6G and smart cities where mobile and telecom expertise has a major role to play.
The decision of LG to exit the mobile phone market has not surprised many. 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. For the last few quarters, LG was weighing out downsizing its mobile phone business.
While LG 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 mobile 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 mobile segment, earlier speculations were high about LG taking a calculating approach by exiting from the premium smartphone market and focus solely on low-to-mid-end devices, according to a company insider.
While the cat is out of the bag, the 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 was also one of the options explored before making a decision to leave the mobile phone market. Even though no overt interest was displayed on LG’s behalf, the potential sale of the company was indeed a mouth-watering prospect for their rivals.
Anyways, CEO Kwon Bong-Seok hs 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 mobile arm, all subject to if the company looks to downsize and focus on just flagship models.
There is still a lot more clarity required on the future prospects of LG’s mobile phone business yet, experts believe that the sales of LG’s mobile phone business is still a considerable option for its management.
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 mobile phone 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, as LG has made it clear that it has no interest in the mobile phone business, an announcement of the sale shouldn’t surprise many in the months to come.
Whatever happens, the “cold, hard look” has made the management do away with the mobile phone business and pump assets elsewhere to turn a profit.
It’s clear the the rising competition from the neighbour has killed all the hopes of LG to revive its mobile phone business. With the official announcement of LG existing mobile phone business, an era has ended for the company known to have the largest catalog of electronics worldwide.
Stay tuned here more updates.