Experiencing Loss Of 4.4 Billion US Dollars, LG Closes Cell Phone Business

Illustration of LG smartphone products. (Wikimedia Commons/LG)

JAKARTA - LG Electronics announced that they are withdrawing from the mobile phone business on Monday, April 5. This decision was taken after years of loss amidst the rapid development of the mobile phone business in the world.

One of the giants in the technology and information industry said the mobile communications union (MC) will not produce and sell mobile phones after July 31. The reason is the long slump and intense competition in the industry.

The decision came two months after the company said the MC division was open to "all possibilities" regarding future operating plans.

It is known that LG's smartphone business has been losing money since the second quarter of 2015. Their accumulated operating losses reached 5 trillion won or around USD 4.4 billion last year.

LG, once the world's third-largest handset maker from South Korea, is reportedly in talks with Vietnam's Vingroup and Germany's Volkswagen to sell their mobile business. However, the talks failed, industry sources.

The decision to leave the cellular business will lead to lower revenue for the company in the short term. But in the end, it will improve financial status and management efficiency over a longer period.

Meanwhile, analysts said that LG's operating profit could increase by 1 trillion won this year if they pulled out of their losing mobile business.

LG has been trying to make a turnaround in their mobile business in recent years, moving their smartphone production base to Vietnam, while expanding their outsourcing deals.

To increase sales of their premium smartphones, LG last year launched the Explorer Project, their new category of mobile phones highlighted by a different form factor.

Under the project, the company released the Wing, a dual-screen smartphone with a rotating form factor, but the sales were disappointing.

This year, LG is scheduled to launch a smartphone with a rollable OLED display, after presenting the product at the 2021 Consumer Electronics Show (CES). However, the company reportedly canceled the plan.

Analysts said LG's efforts were not enough to turn things around as the company was overshadowed by Samsung Electronics Co and Apple Inc in the premium segment. Meanwhile, Chinese brands dominate the middle-class cellular phone sector.

"Their strategic smartphone models such as Velvet and Wing are underperforming and with the 5G momentum past its peak, the company has lost ground in the premium smartphone market with few cards left to play with", said Koh Jung-woo, an analyst at NH Investment Securities.

"Their roll-up smartphone is attracting attention at CES and is enough to increase its technological prowess. However, it is unlikely to make any significant sales", he continued.

According to market researcher Counterpoint Research, LG is the ninth-largest smartphone vendor in the world with a 2 percent market share. Last year, they shipped 24.7 million smartphones, which was down 13 percent from the previous year.