LG Electronics’ mobile business, which has recorded a deficit for many years, is at a crossroads. In a press release on the 20th, LG Electronics said, “Regarding the mobile business, we believe that we have reached the point where we must make the best choice by calmly judging the current and future competitiveness.” We are reviewing.” On the afternoon of the 21st, a traffic sign appears on the glass window of a cell phone store in Yongsan, Seoul, where LG smartphone advertisements are displayed. Photo = Yonhap News
The market responded with cheers to the news of the official withdrawal of the smartphone business by LG Electronics, which was a “troublesome” with a cumulative loss of 5 trillion won. The stock price continued high and reached an all-time high, and the stock market responded with a rosy forecast report from LG Electronics.
High-intensity measures such as the sale of business units should be followed
On the 20th, LG Electronics announced on the sale of the smartphone business that “we are considering the direction of business operation with all possibilities open.” The company is wary of expanding interpretation, saying, “Nothing has been decided yet,” but the market is dominant in the prospect that high-intensity measures such as the sale of business units will follow. Plans for the sale of production facilities moved from Korea to Vietnam are proposed, leaving only the core research organization of smartphone-oriented mobile communication (MC).
Visuals_LG Electronics Annual Operating Profit
The possibilities are not small. In order to escape from the deficit in the smartphone business, which has been lasting for six years, LG Electronics recently entrusted product development and production to manufacturers and has greatly strengthened’Manufacturer Development and Production’ (ODM), which sells only LG brands. It was a dilemma that came out of the plan to reduce the deficit by developing smartphones and reducing production costs. Although the ODM ratio has been raised to 60%, the size of the MC division’s deficit last year is estimated at 800 billion won.
An analyst at a securities firm predicted, “We have reached the limit to withstand cost reduction,” and “the more smartphones are made, the more likely they are to withdraw from the business because they have to deal with massive deficits.”
A cheering market, “Annual operating profit can exceed 4 trillion won”
LG Electronics surpassed 3 trillion won in operating profit for the first time in history, thanks to the sales of TV and home appliances business last year. Among the five business divisions, TV, household appliances, MC, and electrical equipment parts (electrical equipment and VS), MC and VS are the only ones that have suffered a deficit, but MC’s deficit is overwhelming. The deficit is the same, but VS and MC are different. VS changed its status last year by leading the establishment of a joint venture with Canada’s Magna, the world’s third-largest electric vehicle, the world’s third-largest auto parts maker.
In the stock market, it is predicted that the operating profit of LG Electronics this year, which has already removed the smartphone business, will enter the 4 trillion won range. LG Electronics’ annual operating profit is estimated at 3.4 trillion won, which is based on the calculation that if the deficit in the smart business is drastically reduced, the operating profit can increase accordingly. Kim Ji-san, head of the Kiwoom Securities Center, said, “If the loss of the MC division is eliminated, the operating profit will exceed 4 trillion won right now.” Securities companies also reflected this and raised the target price of LG Electronics to 200,000 units.
LG Electronics’ mobile business, which has recorded a deficit for many years, is at a crossroads. In a press release on the 20th, LG Electronics said, “Regarding the mobile business, we believe that we have reached the point where we must make the best choice by calmly judging the current and future competitiveness.” We are reviewing.” On the afternoon of the 21st, LG phones are on display at a cell phone store in Yongsan, Seoul. Photo = Yonhap News
However, the possibility of “withdrawal of the smartphone business” is missing from the stock companies’ annual LGE earnings forecast for this year. First, the target price was raised on the premise of the sale of the MC division. Nevertheless, the fact that LG Electronics admitted that the smartphone business has reached its limit is recognized as a huge boon in the market. “As the demand for eco-friendly products expands this year, the appearance of LG Electronics’ existing home appliance and electronic equipment business is expected to increase further,” said No Geun-chang, head of the Hyundai Motor Research Center. did. LG Electronics’ stock price rose 12% on the 20th, and then rose 10% on that day, again hitting a record high.
Kim Dong-wook reporter [email protected]
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