LG Throws in the Towel on Its Smartphone Business
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LG Electronics was an early innovator in the smartphone market at a time when it was young and fast-growing. This week, the company announced that it's exiting a much more mature smartphone market that no longer seems to have room for it.
Rumors that the South Korean multinational conglomerate would drop its smartphone business have been circulating in recent years but picked up in intensity in recent months. LG officials in January released a statement saying they were reviewing the options for their smartphone business, and reports came out around the same time that the company was looking to sell the unit.
On April 5, the company finally confirmed that it is getting out of what officials in a statement called an "incredibly competitive mobile phone sector."
Focusing on other markets
The "strategic decision" will enable LG to focus its efforts and resources on a range of growth areas, including components for electric vehicles, connected devices, robotics and artificial intelligence (AI), and smart homes. The company will also take advantage of its mobile capabilities to develop related technologies, including 6G connectivity.
LG is still a player in the mobile phone space, holding about 9 percent of the U.S. market in the fourth quarter of 2020, ranking a distant third behind Apple (at 65 percent) and fellow South Korean company Samsung (16 percent), according to Counterpoint Research. It owns about 2 percent of the worldwide market, the market research firm said.
At the same time, LG’s mobile phone business has seen almost six years of losses that amounted to about $4.5 billion, according to a Reuters report. The company, which was an innovator in the space early in the last decade, was hampered by hardware, software and marketing issues over the years. The top carriers – Verizon, AT&T and Sprint Mobile – all offer LG mobile phones that run the Android operating system in their wireless plans.
Time to move on
Company officials saw the current market and the direction it was heading and decided to get out, according to Bob O’Donnell, principal analyst with TECHnalysis Research.
"They've done a number of very interesting and innovative designs, but they haven't had much momentum there in a long time. They were as big as some of the other small players arguably," O’Donnell told InternetNews. "It's just that, when you're LG, you think much bigger than that and [being a big name among smaller vendors is] not good enough. They reached a point where they felt they could continue to be this little player, but that's not how they are."
The mobile phone market, while mature, continues to grow. According to IDC analysts, the global market will see a 5.5 percent year-over-year increase in devices shipped in 2021, driven in large part not only by increasing demand but also by vendors rolling out more 5G devices. 5G smartphones will account for more than 40 percent of shipments this year and increase to 69 percent in 2025, they said.
Garner is forecasting that smartphone sales worldwide will jump 11 percent this year, with 5G accounting for 35 percent of them.
Feeling the squeeze
Despite ongoing market growth, LG was continuing to get squeezed by giants like Apple and Samsung as well as phone makers from China – such as Huawei, Xiaomi and Vivo – that offer low-cost innovative devices. Another problem for LG has been that it wasn’t making its own chips, O’Donnell said. Like many other vendors, LG used processors based on the ARM architecture from companies like Qualcomm.
"They didn't have custom silicon," he said. “If you look at the biggest players, they're all doing their own chips now. Apple obviously does. Samsung does. Yes, Samsung uses Qualcomm, but they also design some of their own. So it's a big, big, big commitment to be in [the market] long term. Huawei was trying to do that as well. If you look at the biggest players, custom silicon has been the way through which they've been able to differentiate and I don't think LG saw a path for themselves to be able to do that."
That said, getting out of the mobile business is not a death knell for the company. The conglomerate has its hands in a broad array of businesses, from telecommunications and chemicals to energy and elevators. Its electronic companies touch on such areas as televisions, displays and panels. LG is the fourth-largest chaebol – an industrial conglomerate in South Korea that is family owned and with a diversified portfolio of affiliates – in the country.
At the same time, LG’s deep experience in the mobile phone, component and electronics industries will help the company as it looks to establish a larger presence in rapidly emerging areas such as the Internet of Things (IoT), edge computing and automotive technology, all of which rely on mobile, networking and display capabilities that LG has expertise in.
Turning to growing markets
These markets are expected to grow in the coming years. IDC is predicting that worldwide shipments of smart phone devices, which hit 801.5 million units last year – a 4.5 percent year-over-year increase – will shoot past 1.4 billion in 2025, growing an average of 12.2 percent a year during that time. Consumers are getting increasingly comfortable with home automation products and ambient computing through such products as smart speakers, analysts said.
LG expects to complete shutting down its mobile phone unit by July 31, joining other companies like BlackBerry and Nokia as early innovators that no longer sell devices, though they do still have software businesses. LG officials said there could still be devices in their inventory that will be available.
It will continue to develop its 4G and 5G technologies as well as target 6G and will keep much of its R&D workforce, according to Reuters.
However, even as the company exits the mobile phone business, it won’t leave customers hanging. It will provide service, support and software updates to customers who own LG devices for periods of time that will vary by region. It will also continue to work with suppliers and business partners as it winds down the business.