[LG Phone Withdrawal] Why Is LG Exiting the Mobile Business... LG Unable to Withstand 5 Trillion Won Losses

The LG Twin Towers in Yeouido, Seoul, where LG Electronics' headquarters is located, on the 2nd, as LG Electronics' exit from the smartphone business is imminent. Photo by Mun Honam munonam@

[Asia Economy Reporter Cha Min-young] LG Electronics, which had steadfastly maintained its smartphone business despite annual losses reaching 1 trillion won, decided to withdraw from the business primarily due to a judgment that it lacked business competitiveness. It is also believed that the repeated vicious cycle of the MC Business Division, a single business unit, worsening the overall company profitability through operating losses was a significant burden.

On the 5th, LG Electronics announced through a board resolution that it would cease operations of the MC Business Division, which manages the smartphone business. 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," adding, "We will focus our capabilities on core businesses through internal resource optimization and improve the business structure."

The MC Business Division, which has recorded losses for 23 consecutive quarters and accumulated losses reaching the 5 trillion won range, has been considered a painful point for LG Electronics. In the fourth quarter of last year, LG Electronics' MC Business Division posted an operating loss of 248.5 billion won, continuing 23 consecutive quarters of operating losses. For the entire last year, the operating loss was 841.2 billion won, better than the 1.01 trillion won loss in 2019 but still at a poor level.

Global competitiveness has also declined. From 2011 to 2015, LG Electronics maintained a 3-4% share in the global smartphone market, ranking within the top five, but by the end of 2020, it had fallen to 2%. It was squeezed from above by Samsung Electronics, Apple, Huawei, and from below by emerging Chinese companies such as Xiaomi, Vivo, and Oppo. In the domestic market, it recorded a share far behind Samsung Electronics. According to market research firm Counterpoint Research, last year’s domestic market share was 65% for Samsung Electronics, 20% for Apple, and 13% for LG Electronics.

The main reason for the weakening competitiveness was poor sales of premium smartphones. When Apple led the smartphone revolution by launching the iPhone based on iOS in 2007, LG Electronics was criticized for resting on the past glory of feature phones and neglecting the development of UI/UX, the core competitiveness of smartphones. The consulting advice from the famous firm McKinsey & Company, which underestimated the impact of smartphones, is also cited as a cause of the initial failure to respond.

In 2012, LG attempted a counterattack with technology-focused products such as the 'Optimus G,' known as the 'Chairman’s phone,' and the 'LG V40' with a triple camera setup, but it was criticized for failing to properly read the smartphone revolution trend. Under the leadership of Kwon Bong-seok, President of LG Electronics, there was an attempt in 2018 to transplant the success formula of the Black Label series 'Chocolate Phone,' which was very popular during the feature phone era, into the smartphone market, but this attempt also ended in failure.

Especially last year, the supply of chipsets for 4G smartphones was not smooth, leading to a decrease in smartphone shipments. Chinese smartphone manufacturers such as Oppo, Vivo, and Xiaomi aggressively procured components like application processors (AP), causing a shortage of key parts. As demand for advanced semiconductor chips for 5th generation (5G) smartphones increased, a chain reaction of component price hikes due to supply shortages occurred. Amid accumulated operating losses in the 5 trillion won range, a judgment was made that there was no future competitiveness. LG Electronics' top management ultimately decided to give up.

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