It has been widely rumored for a few quarters that LG has been contemplating exiting the smartphone business due to six years of negative operating margins with limited opportunities to reverse the problems. This rumor was confirmed April 5 after a board of directors meeting.
LG has certainly made attempts to change course. It has, multiple times, vacillated between focusing on the higher margin flagship space and the lower price tiers to gain market share and mind share. None of these changes helped the smartphone division recover. Other small missteps hurt competitiveness:
- LG made a big bet on modular design as the market pivoted to higher compute, video-oriented, and exploding camera capabilities. The large designs with large batteries made the compromised ‘modular battery’ uncompetitive.
- LG reduced its country support to bring down the number of R&D streams to help profitability. This is difficult in a competitive, scale business.
- LG also moved more slowly to an ODM model. In addition, it shifted most manufacturing out of South Korea to Vietnam, but cost disadvantages remained.
Some bad luck and increased global smartphone competition were also factors in the LG smartphone business’ decline. Look for LG to focus on further investing in its TV business (content services, TV software, transition to 8K and OLED/NanoCell technologies) and the automotive industry (both infotainment and as auto OEM partner).
Now that the exit is official, what does this mean for the North American market?
- The North American market purchased 64% of LG’s smartphone volumes. LG remained the solid No. 3 player in the US market. In 2020, it held under 6% market share in US postpaid channels. Its premium devices could not stand up to the marketing bombardment Apple and Samsung bring through the entire life of their devices.
- Within prepaid, LG has continued to be very competitive. In 2020, LG held 28% market share within US prepaid channels. It only trailed Samsung in prepaid unit sales. Its Stylo 6 sold over two million units. But even with a solid brand name and consistent prepaid unit sales, profitability remained elusive. For complete LG sell-through details for the US and Canada, see North America Online, Offline Monthly Channel Tracker.
- Besides the almost 14 million smartphones LG sold in the US in 2020, its void will also be felt as a major technology partner to North American and global operators. LG ushered in the first large-volume qwerty devices, adding text messaging to carriers’ bottom line. LG was always first or early with major technology shifts. It was a trusted partner for global operators, bringing early integration of LTE, Wi-Fi calling, carrier aggregation, 5G and mmWave to name a few.
- Key prepaid channels will be looking to secure a trusted OEM partner to meet the criteria related to price point, quality, lab approval and launch date. These channels include major prepaid operator channels such as Cricket, Boost, Metro and US Cellular, and national retailers such as Walmart, BestBuy and Target. In total, these channels cover over 70 million subscribers. The churn is higher here and the holding periods are much shorter than postpaid.
- LG’s exit means new opportunity for TCL, HMD Global, Vinsmart, Moto, Samsung and others.
- LG is expecting to see no new launches and will go into ‘support’ mode in July 2021. Therefore, challengers need to begin winning over LG slots immediately.
For complete details of new opportunities for OEMs looking to win over LG’s lost share in NAM, LATAM, and South Korea, contact info@counterpointresearch.com
