[LG Phone Withdrawal] 5 Trillion Won Deficit and Failed Sale... Smartphone Era Ends on July 31 (Comprehensive Report 2)

[Asia Economy reporters Seulgina Jo and Minyoung Cha] LG Electronics has made a painful decision. When selling its smartphone business, which has accumulated losses exceeding 5 trillion won, proved difficult, the company ultimately decided to withdraw. This is an official decision made 75 days after the beginning of the year when LG announced it would "keep all possibilities open" and began organizing its smartphone business. It is widely evaluated that this reflects the strong management will of LG Group Chairman Koo Kwang-mo, who has been adjusting the group’s affiliate portfolio since last year with a focus on ‘selection and concentration.’

On the morning of the 5th, LG Electronics announced through a board resolution that it will suspend operations of the MC Business Division, which operates the smartphone business, as of July 31. The MC Business Division’s sales amounted to 5.2171 trillion won in 2020, accounting for 8.2% of the company’s total sales. The company stated, "The reasons are intensified competition in the mobile phone business and continuous business underperformance," and added, "We will focus our capabilities on core businesses through internal resource efficiency and improve the business structure."

◆ Withdrawal Sequence Foreseen with ‘5 Trillion Won Loss’... Sale Negotiations Also Difficult

LG Electronics’ withdrawal from the smartphone business is widely seen as a foregone conclusion. The MC Business Division, responsible for mobile business, recorded operating losses for 23 consecutive quarters from Q2 2015 through Q4 last year. The cumulative operating loss by the end of last year reached 5 trillion won. Additionally, the global market share remained stagnant in the single digits. In the premium market, it was overshadowed by Samsung Electronics and Apple, while in the mid-to-low price segment, it was beaten by Chinese manufacturers leveraging price competitiveness, resulting in a market share of just around 2%.

Especially since last year, Chairman Koo began a process of selecting which businesses to discontinue and which to grow among group affiliates, leading to increased internal negative sentiment about continuing the smartphone business. A group insider said, “There were grim discussions that LG Electronics’ market capitalization remained in the 20 trillion won range because of the smartphone business,” and added, “It was a matter of whether to maintain the MC Business Division and bear opportunity costs or to make a decisive move.”

At the beginning of the year, there was talk inside and outside the industry about the possibility of a split sale. Potential buyers mentioned included Vietnam’s Vingroup, Germany’s Volkswagen, and the United States’ Facebook. However, after more than two months passed without significant progress, it appears that the management made a decision. LG Electronics tried to leverage products like the LG Rollable, which attracted market attention, to steer sale negotiations favorably, but it is known that there were significant differences in positions regarding the sale price and research and development (R&D) patent rights.

◆ "Production and After-Sales Service Continue Until End of May"… Discussions to Minimize Partner Losses

LG Electronics will continue producing mobile phones until the end of May to supply products promised to telecommunications operators and other clients. Furthermore, even after the mobile phone business ends, the company plans to provide sufficient after-sales service (AS) to ensure that purchasing customers and existing users do not experience inconvenience. In addition, LG Electronics will continue discussions to reasonably compensate partners and suppliers for losses resulting from the business closure.

The employment of approximately 3,700 MC Business Division employees will be maintained. To this end, the company plans to reassign these employees by comprehensively considering their job competencies, the manpower demand of other business divisions within LG Electronics, and LG affiliates. In this process, individual preferences will be prioritized to ensure effective reassignment from the perspective of long-term personal growth.

Even after ending the mobile phone business, LG Electronics will continue research and development (R&D) of core mobile technologies to prepare for the future. Core mobile technologies such as 6G mobile communication, cameras, and software are essential capabilities for next-generation TVs, home appliances, automotive components, and robots, so R&D will continue centered on the Chief Technology Officer (CTO) division. In particular, the company will accelerate securing 6G foundational technologies, expected to be standardized around 2025 and commercialized by 2029. Through this, LG plans to prepare for the era of the All-Intelligent Internet of Everything (AIoE), where autonomous driving and the close, organic connection of people, objects, and spaces will be realized.

◆ Accelerating Business Restructuring… Growth Engines Selected as ‘Automotive Components, AI, and Robotics’

Along with withdrawing from the smartphone business, LG Electronics is expected to accelerate the restructuring of its overall business portfolio. The company will focus its capabilities on AI-based home appliances and future automotive components while expanding new businesses such as robotics. These areas have been key focuses since Chairman Koo took office in June 2018, recognizing them as major growth engines in the Fourth Industrial Revolution era.

LG Electronics’ recent decision to establish a joint venture (LG Magna e-Powertrain) with global automotive parts manufacturer Magna International also confirms its intention to nurture the future automotive components business as a major growth engine. LG Electronics President Kwon Bong-seok declared 2020 as the inaugural year to become a comprehensive automotive components company. The market also speculates that LG Magna, launching in July, could be entrusted by Apple to produce the Apple Car.

At the group level, the automotive components sector is a core area of the ‘digital transformation’ that Chairman Koo has emphasized. Through LG Energy Solution, spun off from LG Chem, LG Electronics, LG Innotek, and LG Display, the group has established a comprehensive system covering electric vehicle batteries, in-vehicle infotainment, powertrain, vehicle displays, and vehicle communication and lighting components. This creates a business environment where strategic collaboration among key affiliates can maximize synergy.

AI and robotics industries are also representative future growth areas selected by LG Electronics. Earlier, LG Group launched the ‘LG AI Research Institute,’ an AI-dedicated organization involving 16 affiliates. This shows the group’s commitment to securing AI foundational technologies and expanding AI businesses through collaborative efforts. Additionally, LG Electronics is positioning robotics as a pillar of its future business, focusing on robots that can be easily encountered in daily life and offering customized solutions for hotels, hospitals, and F&B (food and beverage) sectors. The market expects LG Electronics to soon make additional investments such as mergers and acquisitions (M&A) or joint ventures in automotive components, AI, and robotics fields.

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