Korean electronics conglomerate LG Electronics on Monday announced its decision to kill off its smartphone operation. The board of directors approved the drastic move on Monday after LG failed to find a buyer for the business.
LG shares rose 2.8% at the open in Seoul on Monday on word that the company would cut its losses. But they gave that back and ended on a 2.5% loss on a day the Seoul market narrowly gained. The mobile phone business has lost some US$4.5 billion over the course of the almost six years in the red.
Although Nokia (NOK) and BlackBerry (BB) have fallen on hard times, LG is the first major mobile phone maker to exit the smartphone business entirely. It had at the start of the smartphone era been the third-largest mobile phone maker in the world, shipping almost 120 million "feature phones" in 2009.
LG has found relative success in the United States, where it still commands a market share of 9% at last count, according to Counterpoint. That makes it the third-largest American mobile phone seller behind Apple (AAPL) and Samsung Electronics. LG phones also do well in Latin America, where it has a market share of 5%. The Americas account for 83% of its smartphone sales.
But LG was slow to adapt to the smartphone era. It also for far too long resisted using the Android system from Alphabet's Google (GOOGL) in favor of an operating system based on Microsoft (MSFT) technology. Tech updates were slow and glitchy.
LG's mobile phone business generated sales of US$4.7 billion in 2020, when LG sold 24.7 million smartphones. But the units figure was down 13%, and the mobile phone business, 8.3% of total revenue for the conglomerate, generated an operating loss of US$750.6 million.
The company said in January that it was reviewing its direction based on "our current and future competitiveness," which it obviously felt was lacking in the end. The shares zoomed 33.1% higher on that January news, though investors are obviously disappointed that there's no sale at the end of the review.
Samsung stands to gain the most from LG's decision, since its Korean competitor makes Galaxy S models in a similar mid-range price to LG's G series. Models costing under US$150 made up 64% of LG's total sales at last count, and its graduation toward lower-priced model sales held back its profitability.
LG's flashiest models have been the US$999 swivel-screen Wing, its last major launch, which has two screens that swivel to form a T shape, particularly useful for gaming or navigation. The game Asphalt 9 plays really well on the phone, when you have the game on the horizontal screen and the race course map on the bottom. LG's V50 ThinQ 5G phone briefly gave it strong sales in the premium segment as one of the first 5G-enabled phones.
LG also has the fold-out dual-screen Velvet and "normal" candy-bar-shape Q51 phones. Disappointing initial sales of the Velvet and the Wing, which it hoped would be "killer" best-selling phones, have pushed LG's decision to put the bullet in the head of the business. Its exit also comes at a time that smartphone sales have been slipping. Smart-device sales for home appliances, on the other hand, have been great during the pandemic.
LG had shifted smartphone production to Vietnam, where it hoped to improve margins through lower manufacturing costs. Talks to sell the business to the Vietnamese conglomerate Vingroup fell apart, according to Reuters, "due to differences about terms."
LG says it will focus its resources in growth areas such as components for electric vehicles, smart-home devices, robotics, artificial intelligence and business-to-business products. It plans to complete the exit from the smartphone industry by July 31, although some of its existing inventory may still be on sale.
LG says it will continue providing software updates and service support for phone customers "for a period of time which will vary by region." It will work with suppliers and partners to ease its exit from the business for people who already own the phones. LG also says it will continue developing 6G technology, to deploy in other businesses, and retain its R&D team.
It's shocking that a viable mobile phone business can't find a buyer. But it shows how cut throat the competition is in mobile phones, where you're only as good as your latest device and your latest upgrade.
With 5G technology, speed will slip into another gear. We may think our current phones are fast. Transferring a high-res movie should drop from around seven minutes to around six seconds. The latency of 5G - think of it as the lag in communication - will be faster than human visual processing. So new smart devices will communicate faster than we can see, meaning the limitation on how we use devices is going to be down to how quickly we can respond, not how fast the machines respond.
I highlighted Samsung Electronics and Xiaomi (XIACF) as stocks to watch in 2021. Beijing-based Xiaomi for the first time moved ahead of Apple in Q3 2020 to become the world's third-largest smartphone seller, with 13% of the market in Q3 2020, according to Counterpoint Research, to Apple's 11%.
But the launch of the iPhone 12 helped Apple turn that around in Q4. Apple commanded a massive 21% of the market after the November launch of sales for that phone. The new product swept Apple past the previous market leader, Samsung, which had 22% of the market in Q3, slipping to 16% in Q4 thanks to the "iPhone effect."
Chinese phone maker Huawei Electronics has slipped from second position and a high of 20% market share in Q2 2020 to just 8% of global sales for Q4. U.S. restrictions have robbed it of its supply of chip sets. Even third-party chip manufacturers are prevented from using U.S. software or hardware to make chips for the company, unless they get a special license.
LG - a name for the Korean chaebol conglomerate that originally stood for "Lucky-Goldstar" - has an LG Display LPL subsidiary with U.S.-listed shares, although LG Electronics (KR:066570) trades only in Seoul and London, with a GDR under the ticker (LGLD). LG is a highly successful manufacturer of flat-screen TVs. In fact, I'm a very happy customer here in Hong Kong.
LG sold more than seven million TV units in Q3 2020, the latest figures available from Omdia, behind only Samsung (which, granted, sold double that). The pattern holds over the course of the full year, too, with LG in 2019 commanding TV market share of 16.3%, second behind only Samsung's 30.9% share, the latest full-year figures from industry tracker T4.
LG's new factory in China expands its OLED manufacturing capacity, where it is the market leader, selling half of the units shipped. Those "smart TVs" are Web-enabled, with the company keen to focus on its range of home electronics that are linked to the Internet and provide smart feedback.