South Korea’s LG becomes first major smartphone brand to withdraw from market
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South Korea’s LG Electronics Inc will wind down its loss-making mobile division after failing to find a buyer, a move that is set to make it the first major smartphone brand to completely withdraw from the market.
Its decision to pull out will leave its 10% share in North America, where it is the No. 3 brand, to be gobbled up by Samsung Electronics and Apple Inc with its domestic rival expected to have the edge.
“In the United States, LG has targeted mid-priced – if not ultra-low – models and that means Samsung, which has more mid-priced product lines than Apple, will be better able to attract LG users,” said Ko Eui-young, an analyst at Hi Investment & Securities.
LG’s smartphone division has logged nearly six years of losses totaling some $4.5 billion. Dropping out of the fiercely competitive sector would allow LG to focus on growth areas such as electric vehicle components, connected devices, and smart homes, it said in a statement.
In better times, LG was early to market with a number of cell phone innovations including ultra-wide-angle cameras and at its peak in 2013, it was the world’s third-largest smartphone manufacturer behind Samsung and Apple.
But later, its flagship models suffered from both software and hardware mishaps which combined with slower software updates saw the brand steadily slip in favor. Analysts have also criticized the company for its lack of expertise in marketing compared to Chinese rivals.
While other well-known mobile brands such as Nokia, HTC, and Blackberry have also fallen from lofty heights, they have yet to disappear completely.
“It shipped 23 million phones last year which compares with 256 million for Samsung, according to research provider Counterpoint.”
LG’s current global share is only about 2%. It shipped 23 million phones last year which compares with 256 million for Samsung, according to research provider Counterpoint. In addition to North America, it does have a sizeable presence in Latin America, where it ranks as the No. 5 brands.
While rival Chinese brands such as Oppo, Vivo, and Xiaomi do not have much of a presence in the United States, in part due to frosty bilateral relations, their and Samsung’s low to mid-range product offerings are set to benefit from LG’s absence in Latin America, analysts said.
LG’s smartphone division, the smallest of its five divisions accounting for about 7% of revenue, is expected to be wound down by July 31.
In South Korea, the division’s employees will be moved to other LG Electronics businesses and affiliates, while elsewhere decisions on employment will be made at the local level.
Analysts said they were told in a conference call that LG plans to retain its 4G and 5G core technology patents as well as core R&D personnel, and will continue to develop communication technologies for 6G. It has yet to decide whether to license out such intellectual property in the future, they added.
LG will provide service support and software updates for customers of existing mobile products for a period of time which will vary by region, it added.
Talks to sell part of the business to Vietnam’s Vingroup fell through due to differences about terms, sources with knowledge of the matter have said.
LG Elec shares have risen about 7% since a January announcement that it was considering all options for the business.
Questions & Answers
Q.What is the primary reason for LG's decision to withdraw its mobile division from the market?
What is the primary reason for LG's decision to withdraw its mobile division from the market?
The mobile division has consistently recorded losses for nearly six years, totalling approximately $4.5 billion. Its competitive position declined due to software and hardware issues, slow updates, and perceived marketing weaknesses against rivals.
Q.Which companies are expected to benefit most from LG's exit from the North American market?
Which companies are expected to benefit most from LG's exit from the North American market?
Samsung Electronics and Apple Inc. Are predicted to gain LG's 10% market share in North America. Analysts expect Samsung to have the edge due to its wider range of mid-priced models that align with LG's former user base.
Q.What are LG's plans for its mobile division employees and its core mobile technology after the withdrawal?
What are LG's plans for its mobile division employees and its core mobile technology after the withdrawal?
Employees in South Korea will transfer to other LG Electronics businesses. Decisions on employment elsewhere will be made locally. LG intends to retain its 4G, 5G, and 6G communication technology patents and core R&D personnel.
Q.How will LG support customers who currently own its mobile products after the division closes?
How will LG support customers who currently own its mobile products after the division closes?
LG will continue to provide service support and software updates for existing mobile product customers. The specific duration of this support will vary depending on the geographic region.
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