In the past week, some media reports were speculating that the South Koren electronics giant will exit its mobile phone business. With today’s announcement, LG joins companies like Microsoft and BlackBerry that have either shut or sold their mobile phone business.
In recent years, LG’s mobile phone business hasn’t been profitable nor strong enough to sustain itself in the incredibly competitive mobile phone sector. Hence. the company had no other option but to move out of the loss-making phone business and focus on other businesses.
“LG’s strategic decision to exit the incredibly competitive mobile phone sector will enable the company to focus resources in growth areas such as electric vehicle components, connected devices, smart homes, robotics, artificial intelligence and business-to-business solutions, as well as platforms and services,” the company said in a statement.
As per the company’s financial report, in Q4, 2020 the mobile phone business unit internally called Mobile Communications (MC) was the worst performer across its five business units.
The company’s overall business has five major units. Home Appliances & Air Solutions (H&A), Home Entertainment (HE), Mobile Communications (MC), Vehicle component Solutions (VS) and Business Solutions (BS) – which the business-to-business arm.
The MC business unit posted sales of 1385 KRW million with a negative -9.2% QoQ (Quarter on Quarter) growth in Q4, 2020 against 1,524.8 KRW million in Q3, 2020. Overall the unit suffered losses of a negative -17.9 percentage points in Q4, 2020.
Given the stats, the decision to shut the loss-making business will have a positive impact on the company’s overall business in the near future.
In the year 2020, which was severely impacted by the COVID-19, according to Gartner data – the smartphone sales were down -12.5% with 1,347,869.8 units sold compared to 1,540,657 units sold in 2019.
However, the company will continue to sell its current LG phone inventory in the market. The existing customers of LG mobile phones will continue to get service support and software updates for a time period, which will vary by region.
LG said that it will work collaboratively with suppliers and business partners throughout the closure of the mobile phone business. Local management will take decisions related to the staff employed in the phone.
The Yeouido-dong, Seoul headquartered corporation will continue to leverage its mobile expertise and develop mobility-related technologies such as 6G. It will use mobile expertise and mobility-related technologies to help further strengthen competitiveness in other business areas.
LG entered the mobile phone business in 2009 with the launch of its first Android smartphone in 2009. And followed that up with the launch of its first Android tablet in 2011.
During the two decades, the company has had some success to create a niche for the LG brand smartphones among users outside South Korea. Its flagship G series along with Velvet and Wing series smartphones have been popular among users around the world.
Despite that niche, the reality is LG brand smartphones, probably lacked the compelling value that drives sales and profitability. But still, there’s enough scope for the company to retain and use technologies built by the mobile phone business unit.
The company will retain the core technologies developed under LG’s mobile business operations in past decades. These core technologies will be applied to existing and future products.
The closure of the mobile phone business is expected to be completed by July 31. However, the company concluded that inventory of some existing models may still be available after the closure.