LG Electronics Moving to Withdraw from Mobile Phone Business

Park Il-pyung, president and CTO of LG Electronics makes a presentation at the Global Press Conference held at the Mandalay Bay Hotel in Las Vegas of the United States on Jan. 6 (local time).

LG Electronics will drastically reduce its smartphone business. The company is reportedly considering selling off or suspending the chronically loss-making business. Analysts say that it has begun a full restructuring of its smartphone business, which has incurred a cumulative deficit of five trillion won.

“It is time to make the best choice regarding our mobile business based on its current and future competitiveness,” CEO Kwon Bong-seok said in a message to employees on Jan. 20.

Industry insiders predict that LG Electronics will leave only some functions such as research and development (R&D) on smartphone technology and dispose of the manufacturing and marketing divisions. “Manufacturing and marketing are responsible for the largest share of the cost at the MC Business Division,” said an industry analyst. “LG Electronics is highly likely to give up manufacturing and marketing and remains a smartphone design company.”

The MC Business Division posted deficits from the second quarter of 2015 to fourth quarter of 2020. The division took cost-cutting measures such as halting domestic smartphone production in 2019 and transferring officials to other business units, to little avail.

LG Electronics started its mobile phone business with the “Hwatong” brand in 1995. Its current global smartphone market share stands at around 1 percent to 2 percent. It has been no match for Apple and Samsung Electronics in the premium smartphone market. Its position is weak in the budget phone market as well. LG Electronics is losing price war with Chinese makers such as Huawei and Xiaomi. The LG Wing, an ambitious form factor phone launched in 2020, failed to reach 100,000 units in sales.

It is unclear whether a rollable phone introduced at CES 2021 in January will come out in time. The rollable phone can increase or decrease its screen size by rolling up and down both ends of its display. “We are still developing rollable phones because nothing has been decided at the moment,” a company official said.

Meanwhile, LG Group chairman Koo Kwang-mo has emphasized digital transformation as the key to creating value for customers since taking office in 2018. The group has been focusing investment on artificial intelligence (AI), robots, battlefields, and electric vehicle batteries, which are regarded as the group’s new core business items.

The Korean business community expects LG Electronics to pull out of its smartphone business, which hit a snag in its growth, and instead focus on the automotive electronics, AI and robot businesses. LG Electronics’ recent decision to establish a joint venture in the electric vehicle powertrain sector with Canada’s Magna International, the world’s third-largest auto parts maker, reflects the group’s strong will to foster the automotive electronics business.

LG Group’s automotive electronics business encompasses electric vehicle batteries, infotainment systems, powertrains, vehicle displays and components for communication and lighting devices. The group’s affiliates, including LG Energy Solutions and LG Electronics, are already in a situation where they can generate synergies in this field.

The stock price of LG Electronics soared to an all-time high on the news that its MC Business Division might go through a restructuring. It jumped 12.84 percent from the previous day to close at a record high of 167,000 won.