|Image shows LG Electronics' new smartphone with a rollable display, introduced during a press conference at CES 2021, Jan. 11. Courtesy of LG Electronics|
Smartphone business restructuring could boost LG Electronics value
By Baek Byung-yeul
LG Electronics denied media reports last week that it was reportedly thinking of exiting its money-losing smartphone business. But industry officials said Sunday that now is the time for LG to get off the fence, because the fundamental strength of the business conglomerate is evolving from consumer products to manufacturing key components in the burgeoning IT and electric vehicle (EV) industries.
LG was used to be the top player in the bygone days of "feature" or "design-centric" mobile phones. Compared to rivals such as Nokia and Samsung Electronics more than a decade ago, users were fond of the refined and trend-setting designs of LG phones. Many people in Korea still have fond memories of LG's svelte Chocolate phone, streamlined Shine phone and uber-chic Prada phone.
But the company lost its luster after lagging behind in the industry-wide transition to smartphones in the late 2000s. This was because senior LG executives at the time decided to keep concentrating on the feature phone business and opted not to acquire memory chipmaker Hynix Semiconductor, which SK consequently purchased in 2012.
Now, LG's presence in the mobile phone business has diminished gradually to the point that it is not even considered a serious competitor to market leaders such as Apple, Samsung and Chinese phone makers.
To keep its mobile business afloat, LG Electronics has increased outsourcing portions of its low- and mid-tier smartphones to cut costs. But even those measures have proven unsatisfactory after the firm suffered operating losses for 23 consecutive quarters as of the third quarter of 2020.
As far as hardware goes, smartphone users may feel no significant difference between the Galaxy or LG smartphone as the industry has already matured and has grown saturated with almost every manufacturer producing quality handsets.
But when it comes to related services and software technologies, consumers are attracted more to the Galaxy series of smartphones that offer a much wider range of apps under Samsung's ecosystem.
By using what's called a "Samsung Pass" app installed in Galaxy devices, users can sign in to their accounts, websites or apps securely using their biometric data. Samsung device users can also enjoy seamless connectivity between smartphones, tablets, smartwatches and wireless earphones. Except for die-hard Apple fans, the ecosystem Samsung has established would probably be suitable for fans of the Android operating system.
Because the smartphone industry is currently dominated by a few players, one knowledgeable source said now is the time for LG to pull out of the mobile phone business or overhaul the business unit.
"The smartphone business has been stagnant for years, with Apple, Samsung and Chinese companies firmly occupying the market. This means it has become difficult for LG, which has been lagging behind the competition, to generate meaningful revenue in the business," the official said.
To be sure, LG has not been sitting by idly as rival Samsung grew to lead the global smartphone market in terms of market share. LG Group has been trying to make fundamental changes in its business operations to transform itself into a core player in emerging businesses such as the EV industry.
While LG has mostly been known for its consumer goods manufacturing business, industry officials said the conglomerate is rapidly becoming a major parts supplier. The group's core affiliates, including LG Chem, LG Display and LG Innotek, have been identified as some of the main beneficiaries of the rapidly growing EV business.
LG Electronics also impressed investors in December by announcing the establishment of a joint venture with automotive parts maker Magna International to manufacture e-motors, inverters and onboard chargers used in EVs.
Magna had been involved in Apple's EV-manufacturing business under Project Titan. The announcement drove LG Electronics shares to their 30 percent daily limit on the day the news broke, because investors hoped the joint venture could potentially supply components to Apple's EVs. The iPhone maker announced recently that it plans to roll out its first EVs in 2024.
The overwhelming response from investors apparently caught LG executives by surprise, but also gave them confidence that they are on the right path. Investors also welcomed news that LG may withdraw from the smartphone business as its shares rose 2.5 percent in after-hours trading.
"Under the group's Chairman Koo Kwang-mo, LG Electronics is advised to reorganize its business structure in a way where it can become a market leader. The company doesn't want to repeat the mistakes of the past in the smartphone business," another industry official said.
"The time has come for LG, which has been criticized for being a latecomer for the past decade. The market has expressed its support for LG's possible exit from the smartphone business."