Tension Mounts at LG Electronics... Fate of 3,700 Employees Also at Stake [Cha Min-young's Post-it]

5 Trillion Won Cumulative Operating Loss... LG Electronics Likely to Withdraw from Smartphone Business
Announcement Expected at Board Meeting on the 5th
Focus on Workforce Reallocation and Patent Technology Utilization Strategies
Glory of Feature Phones... Blame for Falling Behind Smartphone Revolution

LG Electronics showcased the operation of the 'LG Rollable' at CES 2021, the world's largest home appliance exhibition, earlier this year. It was expected to be the world's first smartphone with a rollable form factor design.

[Asia Economy Reporter Cha Min-young] #. Tensions are rising at LG Electronics, which is reportedly set to withdraw from the smartphone business. After failing to respond effectively to the smartphone revolution 14 years ago, the company is facing a cumulative loss of around 5 trillion won and is preparing a final exit strategy. Even if the business disappears, the people remain; how to 'properly and effectively' reassign the approximately 3,700 employees in the division is another critical challenge.

LG Electronics is expected to officially announce the business plan for its Mobile Communications (MC) division at the board meeting on the 5th. While the 'complete withdrawal' from the business has become a foregone conclusion, the issue of reassigning the roughly 3,700 employees and the direction for utilizing core technologies and patents have not been disclosed.

Over the past two months, company executives have negotiated with global companies interested in acquisition, but reportedly, no significant progress was made due to differences in conditions. A securities industry official said, "Discussions about selling the business took place, but there was no progress," adding, "Since then, there has been no special news in the market, so everyone is just waiting for the official announcement."

The acquisition prospects were also unfavorable amid aggressive competition from Chinese smartphone rivals such as Huawei, Xiaomi, and Oppo. The parties involved in behind-the-scenes contacts changed several times. The most likely candidate, Vietnam's Vingroup, considered acquiring part of the U.S. business unit but reportedly decided to enter the market directly. Recently, there were even foreign media reports that an African smartphone company had entered acquisition talks.

There is also a strong sense of self-mockery within the company. This is because LG Electronics has recorded losses for 23 consecutive quarters through the fourth quarter of 2020, accumulating operating losses of around 5 trillion won. In its audit report, LG Electronics acknowledged, "Despite strenuous efforts such as launching innovative products to improve the smartphone business structure, we failed to achieve meaningful sales growth and profitability improvement." The development of the 'Rainbow' project, announced as a strategic product for the first half of the year, and the next form factor 'Rollable' have effectively been halted.

One of LG Electronics' feature phones, the 'Black Label Series' Chocolate Phone. It gained worldwide popularity and reached the ten million seller milestone (1 million units) in 2007.

The decline of LG Electronics' mobile phone business, which once succeeded with the Black Label series such as 'Prada Phone,' 'Chocolate Phone,' and 'Shine Phone,' was largely due to management's erroneous business decisions around 2010. Even when Apple led the smartphone revolution by launching the iPhone based on iOS in 2007, LG Electronics remained complacent with the glory of feature phones. They also made the mistake of heeding advice from the well-known consulting firm McKinsey & Company, which underestimated the impact of smartphones. This was while competitors like Samsung invested in the core UI/UX of smartphones. According to Strategy Analytics (SA), as of the end of the third quarter last year, Samsung Electronics' domestic market share exceeded 70%, while LG Electronics' share dropped to the 9% range.

Of course, LG Electronics also attempted a counterattack with technology-focused smartphones like the 'Optimus G.' As internal concerns grew, the 'Chairman's Phone,' as it was called, was launched in 2012 under the direction of the late LG Group Chairman Koo Bon-moo, receiving initial positive responses. The Optimus G was also the world's first smartphone to feature Qualcomm's LTE-based quad-core Snapdragon S4 Pro. The 'LG V40' was likewise the world's first smartphone equipped with a triple camera setup consisting of main, wide-angle, and telephoto lenses.

LG Electronics' ambitious smartphone launch, 'Optimus G'

The biggest issue at this point is the people. Over the past two months, LG Electronics CEO Kwon Bong-seok has been searching externally for global buyers while internally grappling with the reassignment of approximately 3,700 employees. The reassignment is likely to proceed immediately after the board meeting in April finalizes the business policy and shares it within the company. The roughly 3,700 employees of the existing MC division are expected to be reassigned within the first half of this year to other business units or LG Uplus, LG Energy Solution, and LG Magna e-Powertrain, which is scheduled to launch in July. Core technologies such as patents related to premium smartphones are expected to be internalized and leveraged to create synergy with future businesses.

The atmosphere among LG Group affiliates is also unsettled. This is because, except for core development tasks, there will inevitably be overlapping work. An industry insider said, "I heard that a significant portion of the LG Electronics MC division staff are office workers rather than developers. Employees of existing affiliates are also very concerned about the large-scale personnel reshuffling."

"Regardless of how the business operation direction is decided, the employment of members will be maintained in principle, so there is no need to worry." CEO Kwon Bong-seok, who hinted at the possibility of abandoning the smartphone business on January 20th while trying to prevent employee unrest, is drawing attention as the board meeting on the 5th approaches to see what decision will be made.

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