Ali Hasan
Life’s Good or LG might soon shut down its smartphone division as it’s a loss making division for them. The mobile business of LG Electronics has been in the red zone since the 2nd quarter of 2015. Its accumulated operating loss reached nearly $4.5 billion (Rs 32,856 crores) in 2020 and now, the South Korean company is planning to exit from the competitive smartphone market.
LG has been quite brave with its recent mobile forays, experimenting with what comes next in smartphones but their phones have failed to grab market share and decent profit margins in order to survive and thrive in the marketplace. LG’s share in the global smartphone market is estimated to be between 1-2%.
LG Electronics last week announced that its mobile communications (MC) unit is open to “every possibility” for its future operations amid rumours that the company may sell the struggling mobile business.
Due to its quick decline in the market, there have been 23 consecutive quarters where the company had faced a financial loss. LG has been striving to make a turnaround in its mobile business in recent years, shifting its smartphone production base to Vietnam, while expanding outsourcing deals.
“LG has been showcasing and unveiling some exciting stuff in reputed exhibitions like MWC and CES, but on the ground, we haven’t seen them gaining much in the recent years. Honestly, I don’t see their exit having any impact on the industry,” said Faisal Kawoosa, Founder and Chief Analyst, techARC.
“It’s good that LG decides to exit this business sooner, at least from India’s perspective,” he added. In the light of immense competition from Chinese mobile manufacturers, LG has not been able to reclaim its lost market share in India.
LG made Pretty Innovative Smartphones
“LG has always launched competent smartphones and after Samsung, it has been the only smartphone player that has worked on innovation in shapes and technology, like the scratch-free G6 or the foldable G8xThinQ,” said Ramesh Somani, Chief Editor and Publisher, Exhibit Magazine and BBC TopGear India.
“Their exit will be a big loss to the innovative spirit of the smartphone industry and at the same time, their shrinking market share will not make for a business case,” he added.
“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.” LG Electronics CEO Brian Kwon said the company planned to retain employees regardless of what happened to the mobile unit.
Though ranked No. 3 in the global smartphone market in the first quarter of 2013 by Strategy Analytics, LG was not even among the top 7in the third quarter of 2020 after losing ground to Chinese makers, research firm Counterpoint said.
Analysts said that if LG decides to wind down the mobile phone business, it may increase its market capitalization by an estimated 4 trillion won, as more than 5 years of cumulative losses and misallocation of resources had weighed on valuation.
Ending its mobile business could also help LG focus on expanding in vehicle parts, where it recently launched a joint venture with automotive supplier Magna International to make electric car components. “(LG’s) mobile business has done everything possible to reduce cost,” Ko Eui-young, an analyst at Hi Investment & Securities, said.
“Now the company is at a point where it needs to increase sales by taking market share from Samsung Electronics and Apple, but that’s not seen as too feasible, which makes it difficult for the business to improve its loss-making situation.” Last month, LG said it reorganised its mobile phone division to increase outsourcing of its low to mid-end smartphones, which analysts said represented an attempt to cut costs.
A fresh report suggests that LG is considering moving 60% of its staff to other business units within the company or to other LG affiliates. The future of the rest 40% of the staff is still a mystery, but the report cites the company official who said that “regardless of any change in the direction of the smartphone business operation, the employment will be maintained.”
