South Korea’s LG to shut its loss-making smartphone division

Dropping out of the fiercely competitive smartphone market will let it focus on growth areas such as smart homes and electric vehicle parts.

LG's smartphone division has logged nearly six years of losses [File: Rafael Marchante/Reuters]

South Korea’s LG Electronics Inc will wind down its loss-making mobile phone division after failing to find a buyer, making it the first major smartphone brand to completely withdraw from the market.

The company will end production and sales of mobile phone products on July 31 to focus resources on growth areas including electric vehicles (EVs), smart homes, robotics and artificial intelligence, it said in a statement.

Phones constituted 8.2 percent of LG sales last year and there will be a short-term loss of revenue, but the company expects the closure to be financially favourable in the long run. It will strengthen its car parts business and continue to develop mobile technologies such as sixth-generation networking and cameras, it said.

Its decision to pull out will leave its 10-percent share in North America, where it is the third-largest 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 totalling some $4.5bn.

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.

In 2013, LG was the third-largest smartphone maker after Samsung and Apple [File: Kim Hong-Ji/Reuters]

LG was one of the pioneers of the Android operating system, collaborating with Alphabet Inc’s Google on the Nexus smartphone line.

But later, its flagship models suffered from both software and hardware mishaps which, combined with slower software updates, saw the brand steadily slip in favour. Analysts have also criticised the company for lack of expertise in marketing compared with 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.

Chinese rivals to benefit

LG’s current global share is only about 2 percent. It shipped 23 million phones last year, compared 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 fifth-biggest brand.

While rival Chinese brands such as Oppo, Vivo and Xiaomi do not have much of a presence in the US, 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 is the smallest of its five divisions and accounts for about 7 percent of revenue.

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 that will vary by region, it added.

The company said in January it would review the direction of its smartphone business, having earlier that month promised it would sell a rollable phone this year.

Talks to sell part of the business to Vietnam’s Vingroup fell through due to differences over terms, sources with knowledge of the matter have said.

LG has been expanding its vehicle components business and partnered with Magna International Inc for a joint venture to make key parts for EVs.

Shares in the Seoul-based electronics maker soared more than 30 percent since the announcement, fuelled by hopes that the collaboration may contribute to Apple’s EV project. LG’s expertise from developing mobile tech may help its offerings in the auto space, such as with detecting user intent, drowsiness or gesture interactions.

Source: News Agencies