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Business restructuring

LG Electronics to consider selling smartphone business

Jan 20, 2021 (Gmt+09:00)

South Korea-based LG Electronics Inc. looks to be considering selling off its struggling smartphone division, which has been in the red for 23 consecutive quarters, reaching a cumulative operating loss of 5 trillion won ($4.5 billion).

“We’ve come to a point where we need to make an optimal decision regarding our mobile communications business," the company's Chief Executive Kwon Bong-seok said in an email addressed to the division on Jan. 20.

"Regardless of the direction we decide on, there is no need to worry as, in principle, employment will be maintained," Kwon said in the email.

LG Electronics’ mobile communications division has been reporting an operating loss since the second quarter of 2015, spurring market chatter that the division may be put up for sale or downsized.

Graphics by Jerry Lee


Despite market rumors, it hasn't been easy for the Korean company to make a decision given that the mobile communications division is responsible for the prior art of numerous technologies used to make other products, such as displays.

In patent terms, prior art is any evidence of an invention already being known.

Also, LG Innotek, which makes smartphone parts, relies heavily on the mobile business.

LG GROUP CHAIRMAN PUSHES FOR RESHUFFLING

However, there was a shift in mood last year when LG Group Chairman Koo Kwang-mo appointed a chief strategy officer (CSO) for each affiliate and began reshuffling the group's business by identifying operations to remain versus ones that should be shelved.

At the time, the evaluation of the mobile communications division was a disaster, backed by the argument that LG Electronics' market capitalization, which should be around 50 trillion won, was hovering near 27 trillion won due to the suffering mobile business.

Domestic brokerage firms have also pointed out that even if the group's home appliance division was set up as a standalone company, its market cap would be higher than the current figure.

"There were discussions about the group's smartphone business, whether it should continue to exist, at a business report meeting in November last year," said an industry official, explaining that the opportunity costs to maintain the mobile business has exceeded a critical point.


LG Rollable OLED smartphone teaser at CES 2021


WEAK PRESENCE IN GLOBAL SMARTPHONE MARKET DESPITE EFFORTS

LG Electronics has worked hard to improve its mobile business, releasing innovative products such as the world's first rotatable phone and the latest rollable phone, alongside maximizing resource management efficiency and adjusting global production sites.

In 2019, the company scrapped the production of domestic smartphones and moved some of its mobile communications employees to other divisions in an effort to downsize the operation.

But the efforts were in vain, or perhaps too late, as the division failed to swing to positive earnings.

Also, intensified competition in the global mobile business arena has prompted the country's fourth-largest conglomerate to review its options for the division.

LG Electronics accounts for a mere 1-2% market share in the global smartphone market, far behind big industry players Apple and Samsung in the premium device market. Its presence in the low- to mid-priced smartphone sector is also unimpressive.

“The company is open to downsizing, selling, maintaining – every option,” an LG official said.

Some industry sources say that LG Electronics may maintain the business as a smartphone design division, without the manufacturing and marketing functions.

Meanwhile, LG Electronics' unveiling of the rollable phone may be an attempt to highlight its smartphone technology and raise its valuation ahead of the potential downsizing of the mobile business, industry watchers say. 


Write to Hyung-suk Song and Yun-jung Hong at click@hankyung.com

Danbee Lee edited this article.

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