LG Electronics Inc has confirmed it will wind down its loss-making mobile division after failing to find a buyer following the approval of its board of directors on April 5.
Having struggled for years to make its smartphone outfit profitable, the move will make it the first major smartphone brand to completely withdraw from the market.
A statement by the company said the move will enable it to focus on other areas of growth.
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“LG’s strategic decision to exit the incredibly competitive mobile phone sector will enable the company to focus resources in growth areas such as electric vehicle components, connected devices, smart homes, robotics, artificial intelligence and business-to-business solutions, as well as platforms and services,” it said.
Reuters reported that 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, the company said it will continue to leverage its mobile expertise and develop mobility-related technologies such as 6G to help further strengthen competitiveness in other business areas.
Before its troubles started, 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 lack of expertise in marketing compared to Chinese rivals.
In early 2020, LG’s CEO Kwon Bong-seok pledged to revive the company’s fading flames by 2021. His plan was to expand LG’s mobile lineup and steadily release new ones attached with some wow factors to woo customers.
The company introduced LG’s Velvet and Wing, but they failed to entice consumers. The market has been increasingly growing in favor of its rivals. LG’s stake in the global phone market was down to just 1.7 percent. Efforts by the company, including outsourcing the designs of more of its low-and-mid-range handsets to third-parties, failed to revamp its dwindling sales.
LG acting on its narrowed options, hoped to sell the smartphone outfit. It was reported that the once South Korean mobile giant was in talks with Germany’s Volkswagen AG and Vietnam’s Vingroup JSC, but the discussions failed.
Reading the handwriting on the wall, the company could not keep the loss-incurring smartphone division open any longer.
While other well-known mobile brands such as Nokia, HTC and Blackberry have also fallen from lofty heights, they have yet to disappear completely.
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 sizable presence in Latin America, where it ranks as the No. 5 brand.
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.
The company said details related to employment will be determined at the local level. Reuters reported that 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.
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.
LG is yet to decide whether to license out such intellectual property in the future. For now, the company said current LG phone inventory will continue to be available for sale, and core technologies developed during the two decades of its mobile business operations will also be retained and applied to existing and future products.
It will also continue to provide service support and software updates for customers of existing mobile products for a period of time which will vary by region.