|LG Electronics' mobile chief Cho Juno introduces key features of the LG G5 during a launch event at this year's mobile expo in Barcelona, Spain, in this February file photo. / Korea Times file|
By Kim Yoo-chul, Lee Min-hyung
LG Electronics has announced a major shake-up of senior executives in its mobile business division, as it struggles to rebrand itself in the highly competitive smartphone market.
On Friday, LG Electronics said it has created a program management office (PMO) in its troubled handset business and replaced some executives.
"Friday's announcement is because LG Electronics' latest flagship G5 smartphone failed to generate sales," LG said, adding it hopes the shake-up will give its ailing mobile business "new momentum."
Mobiles chief Cho Juno will oversee the PMO, which has authority to handle strategies for product development, manufacturing, marketing and sales; while Oh Hyung-hoon, a former research lab head, will be its chief, supported by mobile division Vice President Ha Jeong-wook.
"The overseas business unit at the mobile division will take a bigger role," LG said. "The purpose of the realignment was intended to keep LG's handset business running amid challenging market situations."
Kim Hyung-jeong, a senior vice president at LG, has been named head of the company's mobile research lab.
Recently, LG sent a few hundred employees from its handset division to the company's vehicle component division as it looked to diversify.
LG Electronics previously said the move was aimed at enhancing flexibility in human resources management in its bid to respond quickly to the growing uncertainty in the handset market.
But market insiders said the job cuts at the mobile division were to reduce fixed costs at a critical time when the firm needs to improve profit, after the division posted an operating loss for three quarters in a row.
"The smartphone marketplace is expected to be increasingly competitive in 2016 due to anticipated premium models from competitors and further price competition within the mass tier space," LG said.
Nowhere to be seen
Simply put, LG's smartphone business has serious problems. It is facing steep competition due to the rapid rise of cheaper Chinese products and its brand awareness is being hit by curbs on marketing expenditure.
LG ranked seventh in global smartphone sales with a share of less than 4 percent in the first quarter of this year, Gartner, a market research firm, said.
Samsung was the leader, followed by Apple and China's Huawei. Huawei posted an 8.3 percent share, up 59 percent on the previous year, Gartner said.
"It's too risky for LG to launch cash-intensive, aggressive promotional campaigns to up its brand awareness and to remain competitive in terms of cost structure given very challenging situations," said an official at one of LG's technology affiliates who did not want to be identified. "It's too early to say that LG will drop its mobile business. This seems too radical; however, no answers are seen for the time being.
"LG failed to realize ‘economies of a scale,' unlike Apple and Samsung Electronics. Cutting fixed costs is a one-time measure. LG's difficulty in the smartphone business is a structural problem that can't be addressed without radical measures such as relocating all of its manufacturing lines to Vietnam and other cheap Asian countries."
Market research firms expect LG Electronics to report an operating loss of some 100 billion won in its mobile business for April-June, extending losing streaks for five straight quarters.
In March, the company unveiled what it called the "game-changing" modular smartphone, expressing confidence the G5 would drive up weak profitability in the mobiles unit.
The device looked like meeting expectations in the first few weeks following its launch, garnering huge media attention and recording a threefold sales increase on its predecessor ― the G4.
But the G5's initial attention is withering, as shipments continue to drop more steeply than expected, analysts said.
"The estimated G5 shipment for the second quarter of this year will remain 2.2 million, below a previous expectation of some 3 million," Mirae Asset Securities analyst Cho jin-ho said in a report. "This is because the G5's market response is getting weaker and the company failed to compete with the aggressive promotion campaigns of its rivals."