LG Electronics eventually closes the smartphone business after losing its operating loss for 23 consecutive quarters. Amid the accumulated deficit structure for a long time, LG Mobile decided to withdraw from the smartphone business after 23 consecutive quarters of operating losses.
Amid the accumulated deficit structure for a long time, the sale of the LG Mobile Communication (MC) division has been made several times, but LG Electronics announced the release of a rollable smartphone in January and tried to improve the brand image. However, in the end, ten days after the rollable smartphone teasing video was released, a full review of the smartphone business was formalized, and the procedure for withdrawal was taken.
LG Electronics announced that it has decided to end the mobile phone business on July 31 after meeting the board of directors on the 5th.
LG Electronics said, “We have been carefully examining the direction of the mobile phone business so far, but we have decided to end the mobile phone business.” In the midst of intensifying, LG Electronics has been unable to achieve results due to inadequate response.”
“LG Electronics focuses its capabilities on core businesses that can improve efficiency of internal resources and secure competitive advantage through selection and concentration in this market situation, and at the same time improve business structure by accelerating the preparation of new businesses for future growth. We plan to do it,” he said. “We decided to actively utilize the assets and know-how of LG Electronics’ mobile phone business that we have accumulated for a long time to strengthen the competitiveness of our existing business and prepare for future business.
The announcement of the withdrawal of the smartphone business was two months after LG Electronics announced its intention to review the smartphone business on January 20th.
At that time, LG Electronics CEO Bong-Seok Kwon, the CEO of LG Electronics, sent an email to a member of the MC business division, saying, “Competition in mobile business including smartphones in the global market is getting fiercer.” “We believe that we have reached the point where we have to make the best choice based on our judgment, and we are carefully reviewing the direction of business operation with all possibilities open now.”
■ Cumulative operating deficit of 5 trillion won since 2015… Cell phone business ended on July 31st
LG Electronics’ MC business division has maintained an operating loss for 23 consecutive quarters since the second quarter of 2015. By the end of last year, the cumulative operating deficit amounted to a whopping 5 trillion won. Last year, the smartphone division’s annual sales amounted to 5.2 trillion won, and losses amounted to 800 billion won.
In order to improve the deficit structure, the MC business division has promoted efficient resource operation, global production site adjustment, and innovative product launches through product portfolio improvement.
In order to reduce costs, the Pyeongtaek smartphone production line was moved to Vietnam in 2019, and the proportion of manufacturer development and production (ODM) was expanded to 70% of the total volume. At the end of last year, the BTD business office, which was in charge of the manufacturer development and production (ODM) business, was upgraded to’ODM business manager’.
In addition, last year, the existing flagship smartphone lineup, the V-series and G-series, were abolished and the smartphone lineup was reorganized by removing the’Thin Q’attached to the back of the series, and the’Explorer Project’, a smartphone line pursuing a new form factor. The brand image was improved by introducing a new product.
As part of the Explorer project, the’LG Wing’, which rotates the smartphone display horizontally, was introduced as a strategic smartphone in the second half of last year, and this year, it was expected to introduce the’LG Rollable’ with the display rolling for the first time in the industry.
However, it is judged that it is difficult to continue the smartphone business due to the successive strategic smartphone sales and difficulties such as improving the deficit structure, and it can be interpreted that the order of withdrawal was finally decided.
■ The sale was promoted, but failed… “By the end of May, production of mobile phones, sufficient after-sales service continues”
According to industry sources, LG Electronics made contact with Vietnam’s Vingroup, Volkswagen, and Google to find a consignee for the sale, considering the sale of some production lines, including sales, but disagreements over patent rights and intellectual property rights (IP). It is known that the negotiations broke down because of the failure to narrow down.
As the sale became difficult, there were some observations that it would take a step-by-step process of reducing the size of the domestic business first and proceeding only with overseas business in North and South America, but LG Electronics finally made a special decision to withdraw the smartphone business entirely.
Even if LG Electronics leaves the smartphone business, it is a policy to continue sufficient after-sales service so that there is no inconvenience for LG smartphone users. In addition, LG Electronics produces mobile phones by the end of May so that it can supply the products promised to customers such as telecommunications companies. The company announced that it will continue to consult with customers to reasonably compensate for losses from business partners and business partners.
■ About 3,700 employees in the MC business division, relocated to other business divisions and affiliates
LG Electronics will reassign all the personnel from the MC business division to other business divisions or affiliates, leaving only the smartphone maintenance and repair personnel.
LG Electronics said, “We plan to comprehensively consider the job competency of the employees and the demands of LG Electronics’ other business divisions and LG affiliates. We will promote it so that it can be effectively relocated.”
LG Electronics President Kwon Bong-seok said, “No matter how the MC division’s business operation direction is determined, the employment of its members will be maintained.”
The total workforce of LG Electronics’ MC business division is 3,719 people, which is about 10% of the total workforce, which is the second highest level after the H&A business division and the electrical equipment division (VS) business division.
The relevant manpower leaves only the minimum number of smartphone maintenance and repair manpower ▲H&A Division ▲VS Division ▲Home Entertainment (HE) Division ▲Chief Technology Officer (CTO) Division ▲LG Energy Solutions ▲Magna Joint Venture’LG Magna It is expected to be relocated to’e-powertrain’.
■ Continued research and development of core mobile technology… Diversification of business and strengthening future growth engines such as auto parts
Even if LG Electronics terminates its mobile phone business, it continues to research and develop core mobile technologies for future preparation. Core mobile technologies such as 6G mobile communications, cameras, and software are required for next-generation TVs, home appliances, electronic parts, and robots.
In particular, LG Electronics plans to accelerate the securing of original 6G technology that is expected to be commercialized in 2029 after standardization around 2025. Through this, the plan is to prepare for the era of the all-intelligent Internet (AIoE) in which people, objects, and spaces are closely and organically connected as well as autonomous driving.
In addition, LG Electronics is improving the basic structure of its business by diversifying its business based on qualitative growth and rapidly expanding new businesses. In particular, in the upcoming era of electric vehicles and autonomous vehicles, it is speeding up the reinforcement of auto parts related businesses.
In July, it decided to establish a joint venture in the field of electric vehicle powertrain (power transmission system) with auto parts maker Magna International, and in 2018 acquired ZKW, a premium automotive headlamp company in Austria.
Existing businesses such as home appliances and TVs, which LG Electronics has strong points, will expand to platforms, services, and solutions based on customer needs and future trends.
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To this end, we will try new and diverse business models, focusing on the LG ThinQ app, a customer contact platform, LG Care Solutions, a home appliance management service, and a solution business that integrates various products and technologies to provide customers with an integrated solution.
In the case of new businesses, the company announced that it plans to introduce innovative processes such as in-house ventures and CIC (in-house companies), and actively review mergers and acquisitions (M&A) to secure capabilities, and strategic cooperation.