LG shuts down smartphone division owing to losses, what could this mean for the sector?

After struggling to keep up with rivals, LG is considering exiting the smartphone industry this year. Over the past five years, the company's smartphone division has lost about 4.5 billion dollars. CEO Kwon Bong-Seok has informed employees that significant improvements to the company's smartphone market are being considered. The mobile device market is fiercely competitive, and LG does not compete with Samsung and Apple in how a company of its size would expect. LG is classified under the 'others' category in IDC's smartphone market share vendor overview, so it isn't even mentioned.

Today, the global market has been categorized into developed markets and developing markets that alternative demand dominates. And now, smartphones are the hottest issue in developed markets. In this industry, the market domination by top five companies; Nokia from Finland, Samsung Electronics from Korea, LG Electronics from Korea, Motorola, and Sony- Ericsson, while smartphones dominate by; Apple from the US, Research in Motion from Canada, and HTC from Taiwan. LGE tries new strategies to produce smartphones and become the third-largest global mobile phone manufacturer by 2009. However, LGE smarts phone still falls behind RIM and HTC. (1). 

The global mobile phone market made it so difficult to survive in the future. As the core technology shifted from analog to digital, Nokia led the market while Motorola left behind. LGE and SGE joined BIG 5 when mobile phones evolved from voice communication to a complex multimedia device. The transformation of smartphones on the rise and competition in the mobile phone market is entering a whole new phase (2). 

The global mobile phone market in 2008 was predicted to be 1.24 billion in total volume, which reflects a 7.6 percent growth from 1.15 billion in 2007 the markets segments to several areas. The strategies have high growth potential in emerging countries referred to as BRICs (Brazil, Russia, India, and China). In Russia, smuggled mobile phones until the first half of 2005 become more transparent with government regulation imposed as part of the market transparency policy. (3) Apart from that, Brazil has the largest mobile phone market in Central America, accounting for 35 percent of the total Central American market. Furthermore, India and China had even more significant opportunities for market expansion. The developed markets’ subscription rates reach 100 percent showing quantitative growth. Alternative demand for high functional devices had the most substantial demand in these markets. The need for expensive smartphones high in high-end markets, including North America, Europe, Japan, and Korea. Simultaneously, countries with less developed economies are more for relatively cheap and low-end products (4). 

Competition among brands

Look at the competition in mobile phone and Smartphone the Big 5 dominate the markets more than 80 percent. However, the rise of Samsung and LGE has a significant impact on the industry. By this, we can see the fall of Motorola and Sony Ericsson. Motorola started the business just as a battery manufacturer in Chicago and then jumped into the radiotelegraph and wireless communication business. (5) Motorola becomes the first generation mobile phone player in the market. After several years, Motorola faced critical in 2002 when it losses to 3.9 billion. Nokia quickly took the market leader Motorola when they focused the business segment while entering mobile phone markets. Two aspects make Nokia become a success. The first is that Nokia dominates all markets in Asia, not only in developed markets but also in emerging markets like the Middle East. Nokia did well plan its market diversification during economic crises. The uniqueness of Nokia is the manufacturers are themselves responsible in the primary emerging market. The second reason is Nokia’s superior manufacturing capabilities to produce mobile phones. Nokia’s sales were 15 million even Nokia had lost 8.9 percent in the market share in quarter 2009. Nokia also aims to standardize the software put operating the Symbian OS. When Nokia launched Ovi in 2007, it becomes a re-position as a web platform service provider rather than other mobile phones. Until 2005, Nokia becomes a success as a market leader. (6) .

How about Samsung? Nowadays, people are crazy about getting Samsung smartphones in the markets. Samsung is the first Korean company to produce its mobile phone. The company actively transferred its factories overseas so that they can maintain cost competitiveness. Samsung placed its factories where the area provides cheap labor and able to produce low price devices. The factories of SEC are located in China, India, and also Gumi, Korea. Samsung always aimed to cut Nokia and become the global market leader as nowadays people are looking forward to a Smartphone. The rise of specialized Smartphone vendors is very impressive. The average growth rate of the companies increases 15.9 percent in the second quarter of 2009. 

HTC started its business in Taiwan and originally design for other companies in the mobile phone business. HTC pioneer in the smartphone market, collaborates with Google and Microsoft with other global partnerships with Orange, T-Mobile, Vodafone, Verizon, and NIT Docomo. Before HTC was revealed in the market, Microsoft Smartphone is released in 2002 and the Microsoft 3G. HTC manufactured the first Google phone, Nexus One, in 2010. It makes HTC ranked number two in Business Week’s Asian Top Information Technology companies in 2007. Annually, HTC will invest 25 percent of its total profit in doing R & D. 


LG’s market in the smartphone sector

Now let’s zoom in on the history of LGE’s mobile phone business. The history of LGE start in began with the analog handset. LGE start the handset business in 2001 and become the top eight global manufacturers in the fourth quarter of 2001. After that, LGE entered the European market and used Global System for Mobile Communication. The capabilities of LGE are effective when it manufactures digital household appliances. LGE also become a pioneer in using touch screen technology with the success of Chocolate Phone, the touch screen technology. Then, Shine Phone and Beauty phone also helped LGE rank third place in the global handset market in 2009 (7). 

The LGE plan uses a strategy to target developed markets (the US and Europe) and developing markets (Central/ South America and Asia). LGE plans to open a hundred LG mobile brand shops to the entire world. LGE intends to maintain its profit margin to a reasonable level by focusing on its premium handsets’ sales and preventing price war by concentrating only on low-end products. 

LGE performed well in the North American market. A study stated that SMS usage was more than doubling every year to send e-mails using mobile phones. Mobile phone with QWERTY keypads is to maximize messaging efficiency. The devices were dubbed Envy and Rumour. Envy’s touch and Xenon become a million sellers (8). 

LGE integrates organizational structure with a highly efficient and allowing cost management. LG to eliminate unnecessary costs, and this enhanced the price competitiveness of LG price competitiveness. Transportation costs were also reduced because the location is nearby. Besides, the advantage of LGE using internal suppliers provides the best quality product.

Competition in application stores is very competitive. App store refers to online space where multiple application is sold or provide access to users. Still, the profits are generated from the sale of the application are shared between the app store operator and the software developer according to the terms of their agreement. 

LG’s compete with other mobile phone industry has few reasons to sustained in the market. Apple had strength in its OS and application and partnership with HON Hai Precision Industry in mobile phone manufacturing. HTC had competitiveness in hardware development and manufacturing while less in OS but became number four when joined with Microsoft. LG Enterprise Application Partnership Program to target B2B smartphones in North America. The objective is to main the differentiated software services to LGE’s corporate clients. When LG committed to creating a Wholesale Application Community, it wants to expand its own LG Application Store. 

Since 2009, LGE has become the third rank in the mobile market. Competition among BIG 5 is so close, and every company had its strategies to improve its products. 


A Plan for the exit

LG Electronics’ smartphone sector has been losing money since the second quarter of 2015. Last year, the South Korean company’s cumulative operating loss hit nearly 4.5 billion dollars, and the company is now preparing to exit the competitive smartphone industry. LG has been very bold in its recent mobile forays, experimenting with what the future of smartphones may hold. Take, for example, the LG Wing, a foldable smartphone, or the upcoming rollable unit. However, LG has yet to achieve substantial and long-term market success, including in India. LG is thought to have a 1 percent to 2 percent market share in the global smartphone market (9). 

LG Electronics announced last week that its mobile communications unit is open to “any possibility” for its future operations, despite speculation that the company is considering selling the struggling mobile sector. Due to the market’s rapid downturn, the business has experienced a financial loss for 23 consecutive quarters. LG has been working to turn around its mobile sector in recent years, moving smartphones to Vietnam and expanding outsourcing deals. “LG has been exhibiting and launching some innovative new products at reputable trade shows like MWC and CES, but haven’t seen them gain much ground in recent years.”

Is LG’s decision to quit the mobile device market a positive one? It has already earned high marks for creativity in the mobile device industry. The LG Prada, for example, had a capacitive touchscreen above hardware keys, Bluetooth, a web browser, and a flash, making it very similar to the iPhone and future Android smartphones. (10) Despite a few drawbacks, such as a significant lack of internal storage and Wi-Fi capabilities, the LG Prada showed that LG could compete if it tightened up and learned from its mistakes.

As of March 5th, 2021, LG has finally announced that its mobile business will be shut down but that existing phones will remain on the market and that the company will continue supporting its devices “for an amount of time that will differ by country.” This decision will “allow LG to focus resources on growth areas such as electric vehicle modules, smart devices, home automation, machine learning, virtual reality, and business-to-business solutions, and also platforms and services,” according to a statement. LG has confirmed that the smartphone company will be closed by the end of July this year.

Since at least the beginning of 2021, LG has been contemplating this move. (11) An LG official later acknowledged that the company had to make “a cold decision” about the division, despite a company spokesperson calling an earlier article about its possible exit from the smartphone market “absolutely false and without merit.” The official had previously stated that possible steps could include “the selling, removal, and downsizing of the smartphone market.” In March, it was reported that LG had tried to sell its smartphone business, but those negotiations had failed and that the division could be shut down instead.

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My passion is Reading and writing. Basically, an optimistic introvert. Always striving to be better. Writing as a passion leads me to become stronger and focused.

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Abraham George
Abraham George
My passion is Reading and writing. Basically, an optimistic introvert. Always striving to be better. Writing as a passion leads me to become stronger and focused.

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