- As many as 26 years after starting it, LG has announced it will shut down its smartphone business on July 31, 2021.
- LG’s exit will leave a vacuum in the US, LATAM and South Korea markets, likely to be filled by Samsung, Motorola, HMD and Xiaomi.
- LG’s smartphone business has been bleeding profits for the last 23 quarters straight.
After failing to reach a deal to sell its mobile phone business, LG Electronics has finally decided to terminate it on July 31, 2021. The company’s negotiations with Vietnam’s Vingroup, Germany’s Volkswagen and other suitors to sell the unit failed to reach conclusion.
LG’s decision to shut its 26-year-old mobile phone business leaves a market share of under 2% to be filled at the global level. The business has been declining since its peak in the 2009-2010 feature phone era.
LG entered the mobile phone industry in 1995 and became the third-largest handset manufacturer in 2009. But since it belatedly entered the smartphone segment in 2010, the company faced many hurdles. Though it finally managed a breakthrough in 2013 with the G series, it was too late. It came six years after Apple’s iPhone and three years after Samsung’s Galaxy S. As a result, it has been in the red for 23 consecutive quarters since the second quarter of 2015, accumulating losses of 5 trillion won (almost $4.4 billion).
LG’s Handset and Smartphone Business
Impact of LG’s decision on market
Over the years, LG had shrunk its focus to just a few markets ؘ– North America, Latin America and South Korea. These are mostly carrier-driven markets. Working with carriers had been LG’s biggest strength, and not marketing and selling phones in the open market with multi-layer distribution. LG lacked the vision, intensity and scale to take the latter route, where Samsung has been so successful.
With North America and Latin America accounting for over 80% of its sales volume, LG was heavily reliant on its major target regions. However, here too the company was witnessing a continuous decline in its market share.
North America Smartphone Shipments by Brand, Q4 2020
In markets like the US, where LG is the third largest brand with 9% share, Samsung will be doubling down with its affordable A series to capture LG’s prepaid share. Motorola, HMD, Alcatel, ZTE and Vinsmart could be the ones in line to capture the rest. In Latin America, Motorola and Xiaomi will fill the gap. In South Korea, it would be Samsung and entry of some Chinese vendors like Xiaomi as carriers look to diversify. We have high expectations especially on Xiaomi since it is planning to re-enter the South Korean market in 2021 and reaching out to the global market with its new Mi11 Pro and Mi11 Ultra flagship models and aggressive marketing strategies.
LG’s Shipments by Price Band, Q4 2020
In Q4 2020, models in the over-$500 price range decreased 5%p in LG’s share while the share of models in the lower price range increased 2%p. Unlike the Korean market, where the company is known for its premium flagship models, its sales in the global market are restricted to low-price models.
Through vertical integration, sister companies and multiple divisions helped LG innovate and build a strong R&D and intellectual property. We believe LG will start licensing IP since it is sitting on tons of IP.
LG has announced that “advanced mobile technologies such as 6G, camera and software will be key competencies in developing TVs, home appliances, automotive electronics and robots”. The company added that it would focus on securing 6G technology, which is expected to be standardized in 2025 and commercialized by 2029.
We believe LG will pivot to developing more innovation across components and lifestyle offerings. As the company chose to exit from the industry after 26 years of business, we expect to see LG to take this as an opportunity to invest in the next wave of technology that will come in the future.
