[Concall] LG Phones in 'Deficit Rally'... Reserved on Business Direction Questions (Comprehensive)

Last Year's Operating Loss of 840 Billion KRW
23 Consecutive Quarters of Losses on a Quarterly Basis

▲LG V30. (Provided by LG Electronics)

[Asia Economy Reporter Cha Min-young] "We are coldly assessing the current and future competitiveness of the device business and reviewing all possibilities to determine the direction."

LG Electronics Mobile Communications (MC) Division, which recorded an operating loss of 840 billion KRW last year, remained silent when asked about the business direction, consistently avoiding comments. This is interpreted as a sign that they do not want to give premature judgments or cause misunderstandings in the market until the internal direction?whether sale, downsizing, or maintenance?is finalized. However, regarding core mobile technologies, they reiterated their intention to internalize them, suggesting connectivity with future growth areas such as smart home appliances and automotive electronics.

Premium Phone Sales Slump Hits Hard

On the 29th, LG Electronics MC Division announced during the '2020 Q4 Earnings Conference Call' that last year's annual sales were tentatively estimated at 5.2171 trillion KRW, down about 700 billion KRW from 2019's 5.96 trillion KRW. The operating loss for the same year was 841.2 billion KRW, about 170 billion KRW less than 2019's 1.0098 trillion KRW. The operating loss rate was -16.1%, similar to the previous year's -16.9%.

The quarterly performance was also poor. Q4 sales were 1.385 trillion KRW, with an operating loss of 248.5 billion KRW. This marked 23 consecutive quarters of losses since Q2 2015. Compared to the previous quarter, Q3 of last year, sales decreased and losses widened.

Seo Dong-myung, head of MC management, explained regarding operating results, "Fixed costs decreased due to production site efficiency improvements and increased ODM (Original Design Manufacturer) ratio, but this was offset by sluggish sales of premium smartphones and a shortage of 4G chipsets."

He forecasted that global smartphone market demand would recover to pre-COVID-19 levels this year. However, he also indicated that competition among major manufacturers would intensify, making the competitive environment challenging. He said, "With the full-scale growth of the 5G market this year, global smartphone demand is expected to recover to pre-COVID-19 levels, but competition among major companies will become fiercer."

Reserved on Direction... "Will Disclose Transparently When Decided"

The market's main interest was undoubtedly LG Electronics' smartphone business direction, but LG Electronics responded consistently. It appears they intend not to cause misunderstandings in the market until the internal direction?whether withdrawal, downsizing, or maintenance?is clearly decided.

Seo Dong-myung said, "We will carefully review the business operation direction by coldly assessing current and future competitiveness, and will disclose it once the business operation direction is decided. Currently, we prioritize employment stability of our members and are seeking the optimal plan by comprehensively considering workforce management, synergy with the company's future strategy, and financial aspects." He added that once decided, it will be disclosed transparently.

Regarding market concerns that a decision to withdraw from the smartphone business might affect future businesses such as the Internet of Things (IoT), robotics, and autonomous vehicles, he drew a clear line. He explained that they are considering various internalization plans to create synergy between core mobile technologies and future businesses.

Seo said, "Our core mobile technologies are important assets not only for devices but also for smart home appliances and automotive electronics (VS). To respond timely to global trends such as IoT and VS, the MC Division and the standards research institute continue to conduct research. In this context, we are reviewing various internalization plans to create synergy with future businesses, and we will share specific plans once the MC Division's direction is decided."

LG Electronics recently made public the possibility of withdrawing from the smartphone business. Until now, whenever withdrawal rumors surfaced, they officially denied them, but now they acknowledge weakened market competitiveness and are preparing realistic self-help measures. On the 20th, Kwon Bong-seok, President of LG Electronics, sent an official email to the MC Division stating, "We are reviewing the business operation direction with all possibilities open."

This content was produced with the assistance of AI translation services.