Why did life stop being good for LG?

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Despite its Life’s Good slogan, this week delivered a bleak outlook for followers of LG Electronics’ mobile handsets, as the company confirmed it would axe the loss-making division rather than selling it or following BlackBerry and Nokia down the licensing route.

But how did it come to this, and where does this leave the mobile phone market in 2021?

LG’s abandonment of the smartphone business comes as no shock to those who have followed the drip-feed of rumours in South Korea’s media tipping its imminent demise, or anyone who had read its recent financial results statements, with the division frequently dragging down the entire business.

The company’s general narrative was that competition, especially in the premium segment, was just too hot.

When it revealed Q4 2020 earnings in January, the electronics giant confirmed the future of the mobile division was under review, noting it expected competition would continue to intensify going forward.

It also blamed “sluggish” sales of premium handsets and a shortage of 4G chips for helping inflict the division’s latest loss, LG’s only segment to record a significant figure in the red.

While it may not have featured as one of the principal contenders in the global smartphone market for some time, in recent years it actively sought to develop innovative and alternative form factors, latterly under its experimental Explorer Project.

Among its attempts to persuade consumers to move away from what has become the generic black rectangular smartphone, LG launched dual-screen premium options the LG G8X ThinQ and finally the T-shaped Wing. However, it appears the latter was unable to elevate the division’s fortunes.

The device maker has also been working on rollable display technology, though a handset sporting it was never released and now looks unlikely to be unless the tech is adopted by a rival.

Attacked on all sides
So what went wrong?

Research company IDC noted LG hit a high of being the fourth-largest manufacturer by shipments in 2013, but by 2020 held less than 2 per cent of the market.

Across the entire mobile handset business Strategy Analytics placed LG’s peak at a 10 per cent share in 2009 (see chart, right, click to enlarge).

Strategy Analytics executive director for wireless device strategies Neil Mawston told Mobile World Live the soon-to-be defunct smartphone brand had been “trapped in a pincer movement between Apple iPhone at the high end, Samsung in the middle, and a tsunami of Chinese brands like OPPO at the low end”.

He also noted LG had “lacked motivation and hunger for many years”.

“While Samsung, Huawei and others were flooding the market with new 4G or 5G phones and thousands of salespeople, LG would often sit on the sidelines with a much smaller device portfolio and only a handful of staff,” Mawston added.

ABI Research research director for consumer devices David McQueen said the move was a “long time coming,” explaining LG’s “marketing has been poor and nowhere near as aggressive as Samsung, while it has made some bad pricing decisions and probably tried to launch one too many duff types of product over the years, such as 3D and Flex”.

McQueen added its rollable could have “been a serious growth opportunity when pitted against foldable devices”, had it made it to market.

IDC EMEA research manager Marta Pinto pointed to the company being a “powerhouse of innovation” given the Wing and its LG Flex device in 2013, though she agreed there were issues with marketing and its go-to-market strategy.

“As the smartphone segment became a mature market and the devices were commoditised, competing became harder,” she added. “Marketing, strategic alliances and partnerships, choosing the right channels, creating brand awareness and delivering value became even more relevant and LG could not keep up with the pace of new entrants and market developments.”

Pinto noted LG mobile’s global footprint had also been contracting in recent years, with distribution eventually concentrated in specific areas. In 2020, she stated, this was the US and Brazil.

In a blog, CCS Insight chief analyst Ben Wood said in addition to the level of competition, LG management’s decision to jettison the unit may also partly be due to ongoing industry-wide chip shortages, making an already difficult market condition worse.

“Unlike its domestic rival Samsung, LG has undoubtedly found it hard to secure stable chip supplies and other components for its smartphones,” he added. “This added hassle of bringing devices to market, and doing so at a loss, is likely to have been a major factor in LG’s cut-or-continue decision.”

Trouble at the top
LG is far from the only large business to decide competition was too hot in the mobile handset market, with three of the top five smartphone vendors by shipments this time a decade ago nowhere to be seen in comparable lists today.

IDC figures for Q1 2011 have Nokia as the largest with a 24 per cent share followed by Apple (19 per cent), BlackBerry parent Research in Motion (14 per cent), Samsung (10 per cent) and HTC (9 per cent).

Of these only Samsung and Apple are still in place as truly global brands in the same guise, with the newest Nokia and BlackBerry devices produced by licensees and HTC’s mobile devices business, which is still haemorrhaging cash, now focused primarily on China.

The exit of LG, McQueen noted, could potentially leave an opportunity for a fallen giant or former big brand name to make some gains.

“I do wonder who will fill the gaps left behind by LG and also Huawei, notably in Europe because of the US-China trade war? Apple clearly only really wants to play in the high-end, and the likes of Xiaomi, OPPO, and Vivo aren’t yet getting that much traction outside the main markets in Asia, for the time being anyway. Perhaps brands like Motorola, HTC and Nokia might start to grow share again, too.”

However, Mawston provided a less optimistic outlook: “The pool of suppliers will continue to shrink through the 2020s. The industry’s problem is that Apple iPhone and Samsung gobble up almost all the world’s smartphone profit, leaving hundreds of other Android manufacturers with little or no profit to survive.”

Licence option
While local reports on the future of LG’s mobile devices unit floated the idea it could go down the well-trodden licensing route, the analysts spoken to by Mobile World Live agreed this had probably been blocked-off by the success of electronics provided under the wider LG brand.

Pinto added it was a “matter of keeping the brand equity intact”, explaining licensing would be a “problematic” option “if the new owner of the brand diverged dramatically from the quality LG is trying to imprint in the other devices it is focused on”.

Although the company is set to wind down the unit by the end of July, hopefully this is not the end of some of the unusual form factors it brought to market and, given its role in a range of related technologies such as displays this is almost certainly not the end of LG innovation in mobile.

In fact, in its statement announcing its decision, LG noted it would continue with “mobility-related technologies such as 6G to help further strengthen competitiveness in other business areas”.

Given the barrage of very similar handset designs currently on the market, hopefully this will extend to it providing technologies and designs to others: maybe its rollable displays and winged designs aren’t as doomed as it seems.

The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the TechGh24.

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