LG fell into Django over whether the smartphone business would exist or not. I am deeply concerned about whether to fold or not, or whether to choose the third zone. From the conclusion, neither option is easy.
Why. It is because of the situation LG phone is facing.
First of all, LG phone’s status is that. iffy. It’s far from leading brands, but doesn’t it work in the mid- to low-end market? LG sells 24 to 26 million mobile phones a year. Not a small quantity. It is ranked 9th in the world. It is a brand that still occupies more than 10% in the North American market, which is a garden. As of last year, the Mobile Communication (MC) business division had annual sales of 5 trillion won and an annual deficit of 900 billion won.
It is difficult to draw a picture if you think of it as a premise. As if five or six years ago, there are not many players who will receive the sale of the entire smartphone business in a saturated market dominated by Chinese companies. Also, in the business world, throwing away one has to gain the other. However, it is not yet clear what can be gained by discarding the smartphone. Although the size of the deficit will decrease, it is possible to lose a platform like Altoran for future business.
Therefore, for the MC division in charge of LG Electronics’ smartphones, this year is expected to be a truly harsh year. This is because this year is the last crossroad to make a decision on whether to abandon the smartphone business, or what method to take if it continues. Regardless of which path to take, the MC division’s’reducing body size’ became inevitable.
Currently, LG Electronics is considering all options from shrinking its smartphone business to selling it.
On the 20th of last month, CEO Kwon Bong-seok, CEO of LG Electronics said, “We believe that we have reached the point where we must make the best choice by calmly judging the current and future competitiveness of the mobile business. We open all possibilities and carefully review the direction of business operation. “We are doing it,” and a full review of the future operation direction of the LG smartphone business was officially made.
As the future of the LG smartphone business is in an unknown situation, there are several scenarios related to the sale, but LG Electronics is unable to easily make a decision.
■ Formulate a full review of the smartphone business
LG Electronics’ smartphone division recorded a loss for 23 consecutive quarters until the fourth quarter of last year. By the end of last year, the cumulative operating deficit (23rd quarter) amounted to 5 trillion won. According to market research firm Counterpoint Research, LG Electronics’ global smartphone sales volume last year was 24.7 million units, ranking 9th in the market (2%).
LG Electronics has made many changes in recent years to escape the sluggish smartphone business.
First, in order to get out of the old deficit structure, it expanded the manufacturer’s development and production (ODM) and moved the Pyeongtaek smartphone production line to Vietnam to accelerate cost reduction. It is known that last year’s ODM portion of LG Electronics expanded to 70% of the total volume.
It has also changed the smartphone business strategy. ‘LG Velvet’, a’mass premium’ product that removed the existing flagship smartphone lineup, the V·G series, and lowered the price point as a strategic smartphone in the first half of last year. In addition, in order to enhance the brand image, it created a new form factor innovation line,’Explorer Project’ last year, and introduced’LG Wing’ with a rotating display.
However, it was not enough to improve the deficit structure and enhance the brand image, and premium smartphone products that tried to change were also neglected from the market.
■ Focus on’reducing your body size’ this year… Potential for phased partial sale
LG Electronics’ MC division is expected to focus on reducing its size first this year. Rather than making a decision to sell or abolish the smartphone business right away, it is highly likely to find an appropriate buyer while conducting the business as a way to reduce the deficit. This is because it is difficult to find a buyer who will buy the entire business, including intellectual property rights and asset transfer, in the smartphone market, which is already preoccupied by Chinese companies.
The industry presents several scenarios with the direction of the MC division’s operation. At present, the possibility of partial sale is weighing more than the sale of LG Electronics’ MC division. It is observed that some production lines may be sold in the process of reducing their size.
Vietnam’s Vingroup is mentioned as a company that takes over the production line. Vingroup is the largest local company competing for the first and second place in Vietnam’s market capitalization. LG Electronics moved its Pyeongtaek smartphone production line to Vietnam in 2019, and it is observed that Bean Smart, who is in charge of the smartphone business of Vin Group, can take the line.
An official familiar with the industry raised the possibility of acquisition, saying, “Bin Smart is already an OEM supplier of LG smartphones. It is not difficult to hand over the factory line in Vietnam to a partner company.”
Volkswagen is also mentioned as a candidate for the acquisition company. However, the background being discussed is a little different. The reason Volkswagen was mentioned as an acquisition company is because LG Electronics has been cooperating with Volkswagen in the electrical equipment business. This is a scenario in which Volkswagen can become a takeover in order to prevent technology leakage.
LG Electronics also supplied parts to the Volkswagen Group’s self-driving concept car, and jointly researched and developed a connected car service platform with Volkswagen. However, the reason that Volkswagen was mentioned was because such a linkage business with LG existed, and it is an observation that it is unlikely to sell the smartphone business.
Google is also mentioned as a candidate for acquisition, but analysts say that this will also be a difficult decision for Google. Google, which owns the Android mobile operating system (OS), has already failed to acquire Motorola in 2012. At the time, after acquiring Motorola, Google ambitiously entered the smartphone business by setting up a manufacturing plant in the United States, but in 2014 it sold it again after losing about 10 billion dollars to Chinese company Lenovo. The Motorola patent was sold to Lenovo, but it was difficult to say that Google’s acquisition of Motorola was successful.
Since then, Google has been continuing the smartphone business by acquiring the HTC smartphone R&D team and intellectual property rights in 2017 and releasing the’Pixel Phone’ in an OEM manner, but the pixel phone has little presence in the smartphone market. This is why it is forecast that it will be difficult for Google to make a decision to take over LG Electronics’ smartphone business.
Chinese companies have also been talked about as candidates for acquisition, but some analysts say that LG Group will not accept selling them to Chinese companies.
There are also observations that LG Electronics will be able to observe the situation this year by closing its domestic business first in the process of reducing its size and only proceeding with overseas business. While maintaining the business while further expanding ODM/OEM, there is also a possibility that the MC division’s research and development (R&D) manpower will be reduced, and it will be reduced from the division to a team and merged with the home entertainment (HE) or battlefield (VS) divisions.
There is also a Nokia model that has closed the phone business, but is in business. It is a model that finally spin-offs or joint ventures while minimizing the terminal business in stages.
■ Currently, nothing has been decided… “Core mobile Technology takes”
LG Electronics’ official position is that no decision has been made at this time. That means it is difficult to make a decision.
LG Electronics said in a conference call for 4Q results on the 29th of last month, “There is no final proposal yet regarding the direction of the terminal business,” saying, “Currently, with the principle of employee employment stability as the top priority, manpower management, synergy with the future strategic direction at the time. “We are looking for an optimal plan considering the availability and financial aspects.”
In addition, LG Electronics made clear its will to internalize and take core mobile technology even if it withdraws from the smartphone business.
LG Electronics said, “Core mobile technology is an important asset not only for handsets, but also for smart home appliances and electronic devices,” and said, “In order to timely respond to global technology trends such as IoT and V2X, the MC business division and the standard research center under the CTO have been conducting research. In this respect, we are reviewing various directions for internalization to create synergy with our future business.”
Outside of LG Electronics, various scenarios are coming out regarding the direction of the MC division, but it is said that the inside is relatively calm. An official familiar with the news of LG Electronics said, “It is expected that the workforce will be rearranged, but since President Kwon Bong-seok promised to retain the employment of members and also announced the position of bringing core technologies,” he said, “Currently, internally related to the MC business Nothing has changed,” he said.
■ Would the world’s first rollable phone cross the water? “It’s still going as planned”
As the existence of the LG Electronics smartphone business became uncertain, it became difficult to guarantee whether the LG Rollable would be released.
LG Electronics unveiled a teaser video of’LG Rollable’, a rollable smartphone in which the display of’CES 2021′, the world’s largest consumer electronics and IT exhibition held online in early January, rolls around. Through the video, the product name was officially announced and the operation was shown, attracting worldwide attention.
LG Rollable is an ambitious second product of the’Explorer Project’ that LG Electronics introduced as a new form factor line last year, and the prospect of becoming the world’s first commercialized rollable smartphone was predominant. LG Rollable was released in the first half of this year at the latest.
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However, 10 days after the release of LG Rollables, a full review of the smartphone business was officially made, making it impossible to guarantee the release of LG Rollables.
However, it has been confirmed that the LG Rollable Project has not been stopped and is still in progress. An official from the telecommunications industry said, “LG rollable network interlocking test is continuing as planned.”