LG Electronics has confirmed the withdrawal of the smartphone business, which has a cumulative operating deficit of 5 trillion won. LG Electronics held a board meeting at its headquarters in Yeouido, Seoul on that day, and announced that it has confirmed the details of ending production and sales of the MC business division (mobile phone business) on July 31. The photo shows LG Twin Tower in Yeongdeungpo-gu, Seoul this morning. Photo = News 1
LG Electronics completely withdrew from the smartphone business on July 31st. It has been 26 years since LG Electronics entered the mobile phone business.
In the mid-2000s, LG phones climbed to the 3rd place in the world market and succeeded. But the heyday was short. In the early days of smartphones, which began in the late 2000s, it was crucial that the management neglected innovation, saying, “Smartphones are premature.” It means that a’management misjudgment’ that was unable to read the mainstream trend of being reorganized into smartphones by complacent with success has returned as a huge boomerang.
In the market, it is positive for LG Electronics’ withdrawal of smartphones. The accumulated deficit alone reached 5 trillion won, which was the result of smashing off a’headache’. This is because it is possible to focus internal resources on future new growth businesses such as artificial intelligence (AI) and electric device parts (electrical devices).
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LG Electronics held the board of directors on the 5th and said, “As a result of scrutinizing the direction of the mobile phone business so far, it has decided to end the mobile phone business at the end of July 31.” It has been two months since LG Electronics President Kwon Bong-seok officially reviewed the smartphone business for the first time on January 20th.
LG Electronics’ withdrawal of the mobile phone business was actually the same as the announced procedure. LG Electronics achieved record-high performance last year, surpassing 3 trillion won in operating profit for the first time in history, but the MC headquarters in charge of the smartphone business recorded a deficit of 841.2 billion won. If the smartphone business continues, the deficit of more than 800 billion won this year is a fixed fact.
Visuals_LG Electronics’ history of mobile phone business
In this situation, it was difficult to find the trick for LG Electronics, and eventually, the business withdrew. It was not easy to collapse the mobile phone business, which has continued for over 26 years, but in the business world, it is interpreted as an extraordinary measure arising from the will of LG CEO Gu Kwang-mo, “I will concentrate my capabilities on future business as soon as possible.” CEO Koo ordered “Let’s take a bold challenge for future growth” at the LG Corp. executive meeting in January of this year, and it is said that the LG Group began to actively consider the plan to withdraw from the mobile phone business.
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After reviewing several scenarios, LG Electronics explained that it has concluded that the withdrawal of the business is more suitable for the company’s profits than the sale of the business unit. There is no artificial restructuring, such as relocating the 3,700 employees of the MC headquarters into the group.
A business official evaluated, “It seems that LG Electronics has decided that it is better to have a mobile-related patent than to sell the business department in a hurry because LG Electronics is putting its power on AI and electronic equipment business anyway.” LG Electronics also announced that it will continue to develop core mobile technologies (6th generation mobile communication, etc.) that can be used for next-generation home appliances and electronic components, although it has stopped producing smartphones in the future.
LG Electronics’ mobile business, which once ranked third in the world market with’Chocolate Phone’ and’Prada Phone’, has ended its 26-year history of honor. The photo shows models showing flagship products such as chocolate phones at ITU Telecom World in Hong Kong in 2006. Photo = Yonhap News
Right now, the market is showing a positive outlook for LG Electronics’ automotive electronics business (VS) from this year. The’electronics business’ encompassing motors and automotive electrical equipment is regarded as a high-speed growth industry. LG Electronics plans to focus its investments in the smartphone business so far on future growth engine businesses, including the electronics business.
LG Electronics also said on the day, “We will speed up the reinforcement of auto parts related businesses in the upcoming era of electric vehicles and autonomous vehicles.” Meritz Securities predicts that the VS division’s operating profit ratio will remain at 2% this year, but it will increase every year to 11% by 2023.
Will LG Electronics, who shake off the phone business, surpass the 4 trillion won mark in operating profit?
In the stock market, there is also a rosy observation that LG Electronics’ operating profit this year, which removed the smartphone business, will reach 4 trillion won. The smartphone division made an annual operating deficit of 800 billion won, and if fixed costs are reduced like marketing expenses in the future, the operating deficit can be reduced to the level of 400 billion won. LG Electronics’ operating profit forecast for this year is around 3.4 trillion won to 3.6 trillion won, and the operating profit will increase as the deficit decreases. It is predicted that this effect will increase from next year.
As if reflecting these expectations, LG Electronics’ share price jumped more than 4% during the day. An analyst at a securities company said, “If the smartphone business is classified as a discontinued business from the third quarter, the effect of the withdrawal of the phone business will be reflected in the earnings.”
Kim Dong-wook reporter [email protected]
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