January 20—LG is considering a withdrawal from the global smartphone market after losing traction in the sector for several years. The Korea Herald notes CEO Kwon Bong-seok sent a memo to his employees explaining the firm needed to make big changes to its flagging handset business.
The executive stated a headcount reduction, a sale, or an exit from the industry are possible options.
Why LG is Contemplating Leaving the Smartphone Business Behind
LG is thinking about moving forward without its once successful handset unit because it has become unsustainable.
Years ago, the unit generated significant revenue for its parent company because its output was stylish and innovative. But the subsidiary has not been able to keep up with the mobile device sector’s rapid evolution. Its formerly loyal customers opted to buy Apple, Samsung, and Huawei handsets since they offered superior performance, more dynamic form factors, and better prices.
Since losing its edge, LG’s mobile division has suffered financially, failing to turn a profit for 22 consecutive quarters.
The conglomerate has attempted to revive its smartphone business with a series of reorganizations. In 2019, the firm decided to shutter its South Korean plant while bolstering production and its Vietnamese factory. It also looked to save money by having third-party original design manufacturers (ODMs) produce its standard and budget handsets.
But those cost-saving measures did not convince the company’s leadership the unit could make up for its losses. In fairness, it did lose $4.5 billion in the last five years betting the department would turn things around.
It is also worth noting that other areas of the conglomerate’s operations have recently performed much better than its smartphone division.
LG’s Future is in Home Entertainment and Automotive Fields
In Q3 2020, the corporation reported earning $14.24 billion, a new third-quarter record high. Its revenue growth largely came from its home appliance and air solutions unit and home entertainment business. Those segments have thrived as COVID-19 has forced millions of people to spend more time staying in, and their products helped the public make their living spaces more comfortable.
At CES 2021, LG showed off a slew of new display concepts that will drive its appliance and entertainment sales for years to come.
The conglomerate also posted a 23.5 percent upswing in its vehicle component solutions subsidiary. That positive change indicates that the corporation’s latest automotive parts resonated with its clients. In addition, it recently partnered with Magna International to form an electric vehicle supplier venture called LG Magna e-Powertrain.
The new company aims to provide innovative battery-powered engines and apparatuses to new-energy carmakers. LG Magna e-Powertrain’s roster will be drawn from LG’s existing staff, so it has the potential to develop some appealing new products.
Right now, LG’s consumer electronics and commercial automobile equipment businesses look to have bright futures ahead. The picture is considerably murkier when it comes to its smartphone sector prospects. With respect to its circumstances, the corporation might be best served by winding down its handset business.