LG Never To Call Again: LG to exit the global smartphone business
April 21, 2021
2 min read
What's going on here?
LG announces plans to wind down its mobile phone division by 31 July 2020.
What does this mean?
After falling profits and investor pressure, LG’s exit from the mobile phone market comes as little surprise to many analysts. LG suggested that there were plans to continue selling phones for a while after and that they would continue to provide service to existing users. LG’s mobile phone division is the smallest of five divisions, accounting for 9% of LG’s global revenue. LG’s phone division primarily generates revenue from sales in the USA, Brazil, and South Korea.
An attempt to sell the division to CORP Vietnam failed owing to insurmountable disagreements during negotiations. LG will shift its focus to developing and manufacturing components for electric vehicles, in addition to other growth businesses including robotics, AI and devices for the home. LG plans to start a joint venture with automotive supplier Magna International in July to make components for electric vehicles.
What's the big picture effect?
LG follows in the footsteps of Nokia, Blackberry and HTC after failing to sell its phones in a highly competitive segment of the market. 5% of LG’s overall sales in 2020 was generated by phones above $400; while 58% of sales in the same period were generated by phones below $150. As such, LG primarily operates in a part of the market that is highly crowded with low-profit margins. The top 10 group of brands, of which LG is not a member, contribute to 90% of global sales leaving the rest of the market players to compete for 10%. In this fight, LG is at the mercy of several Chinese competitors such as Huawei and Xiaomi. They mass produce at lower prices which puts downward pressure on market prices. This goes some way in explaining the extraordinary losses reported by LG’s division: consecutive losses over 6 years amounting to £3.2bn.
Stiff competition is not the only factor in LG’s decision to exit the market. Despite early innovations in phone technology, LG failed to build a strong brand in the phone market. This is in stark contrast with other products LG sells such as their TVs. The failure to build a strong brand in the mobile phone division occurred due to a mixture of gimmicky products that failed to translate into a series of reliable products; the consistent competition of South Korean rival Samsung; a spate of hardware and software product failures; and the failure to create an ecosystem with LG’s phone at the centre – as Apple successfully has. A further question worth considering is to what extent did the global shortage in chip supply act as the final nail in the coffin? The supply chain crisis even forced market leader Apple to delay the release of the iPhone 12 and potentially postpone its latest MacBook range.
The demise of LG, once the world’s third-largest mobile phone manufacturer and leading mobile phone brand alongside Nokia and Samsung, shows that the competition in the mobile phone market is intense. Consumer preferences and changing market habits should be watched carefully by all, and a question remains about whether the current mobile phone leaders will avoid complacency and keep innovating to keep consumers interested.
Report written by Andri Boda
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