When LG Electronics recorded its record-breaking sales and operating profit last year, it held a performance feast, but the smartphone division recorded a loss for 23 consecutive quarters until the fourth quarter of last year.
Last year, total smartphone shipments decreased slightly compared to the previous year. However, it was found that operating losses were significantly improved compared to the same period last year through the expansion of manufacturing development production (ODM) and the increase in sales of low-end smartphones. This year, it plans to further increase the proportion of ODMs to reduce operating losses, and to further increase sales by targeting Huawei’s vacancy in Latin America and Europe.
LG Electronics announced on the 8th that the consolidated operating profit for the fourth quarter of last year was tentatively counted to 670 billion won, up 535.6% from the same period of the previous year (111.8 billion won). During the same period, sales were tentatively aggregated to 18,786.2 billion won, up 16.9% from the same period of the previous year (16 trillion 61 billion won).
This is the record-high quarterly sales and the largest operating profit in the fourth quarter. In particular, the annual operating profit recorded 3,1919 trillion won, exceeding 3 trillion won for the first time. During this period, the mobile communication (MC) division, which is in charge of LG Electronics’ smartphones, is estimated to have recorded operating losses in the high range of KRW 100 billion to the level of KRW 200 billion. The deficit widened from the previous quarter’s operating loss (144.8 billion won), but decreased significantly from the previous year’s operating loss (333.2 billion won). Last year’s annual loss is estimated to be around 8188 billion won from 7797 billion won.
It is analyzed that the increase in sales of low-end smartphones and cost reduction through the expansion of ODMs had an effect. Researcher Roh Gyeong-Tak of Eugene Investment & Securities said, “In the fourth quarter, LG Electronics’ smartphone business is expected to significantly reduce its loss due to the increase in popular sales in North America and Latin America.
However, LG Electronics’ total smartphone shipments last year decreased slightly compared to the previous year. According to Eugene Investment & Securities, LG Electronics’ total smartphone shipment last year was 24.7 million units, down 5 million units from the previous year (29.7 million units). Smartphone shipments this year are expected to be 24.2 million units, similar to last year.
In the second half of last year, LG Electronics released the’LG Wing’, which rotates the display as a strategic smartphone. The LG Wing is the first product of LG Electronics’ new project’Explorer Line’ to lead an innovative form factor change.
LG Electronics is also continuously strengthening its lineup of low-end smartphones. In November last year, it launched the’LG K92 5G’, an entry-level 5G smartphone with a price of $400 in the North American market. The K92 is the first 5G smartphone in the K series. LG Electronics is planning to actively target the North American 5G market by putting the entry-level 5G smartphone with premium performance at a relatively inexpensive factory price.
LG Electronics is planning to expand smartphone sales this year by actively targeting the Huawei void caused by US sanctions in Latin America and Europe this year.
The MC division said in a conference call for earnings in the third quarter of last year, “It seems that there will be no impact from Huawei sanctions in the US, Korea, and Japan. However, in Latin America, including Mexico, by replacing the existing Huawei and expanding sales through consumer confidence. In Europe, we expect to expand premium sales by targeting Huawei’s vacancy with 5G and new form factor leverage.”
Researcher Roh Gyeong-Tak of Eugene Investment & Securities said, “In 2021, the rate of improvement in smartphone profits will accelerate.” “Latin America is a key region where 27% of LG Electronics smartphone shipments and 19% of sales are generated. It is expected to benefit,” he said.
Efforts to improve the cost structure are expected to continue through ODM expansion and factory relocation.
Recently, LG Electronics upgraded the BTD business unit, which was in charge of the ODM business under the MC business unit last year, to’ODM business manager’. As the size of the organization increases, the proportion of ODMs is expected to increase further this year. According to the industry, LG Electronics’ ODM portion of last year was known to have increased to 70% of the total volume.
LG Electronics believes that the two-track method of self-produced premium lines this year and ODM for mid- and low-priced lines was effective, and is expected to continue the strategy next year.
In the first half of this year, LG Electronics plans to release’LG Rainbow (tentative name)’, a premium smartphone with a’Bar’ type, and’LG Rollable (tentative name)’, a rollable smartphone that rolls the screen, the second product of the Explorer line. to be. In addition, LG Rollable will be introduced at the world’s largest home appliance and IT exhibition’CES 2021′, which will be held from the 11th.
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Despite LG Electronics’ efforts, it is unclear whether the smartphone business can turn around this year. LG Electronics’ CEO Bong-Seok Kwon, the CEO of LG Electronics, said at’CES 2020′ in January that the MC division’s turnaround will be possible in 2021.
Daeshin Securities researcher Park Kang-ho said, “If sales are sluggish after the launch of premium smartphones this year, we expect a strategic change in the smartphone business portfolio in the direction of reducing the deficit of the MC business.” “There are difficulties in expanding LG Electronics’ market share due to the solidification of the company.”