LG made a decision to give up smartphone

Several media including Reuters reported that South Korea’s LG Electronics Inc. will give up its loss-making mobile division. In fact, this is the first major smartphone brand to completely withdraw from the market. LG has 10% share of North America market and is the No. 3 brand there, just behind Apple and Samsung.

The division has lost the total amount of $4.5bn for almost six years and the fierce competition. As a result, LG will focus on growth areas such as electric vehicle components, connected devices and smart homes. In good old days, LG succeeded in the smartphone market thanks to its ultra-wide angle cameras. The South Korean company was actually the world’s third-largest smartphone manufacturer behind Samsung and Apple in 2013.

However, LG’s flagship models were struggling to compete with its rivals due to tis software and hardware. The company updated its software slower and less often, and lacked expertise in marketing either. As a result, the South Korean company had only about 2% of global share now. It shipped 23 million phones in 2020, even though its rival Samsung did around 256 million.

Chinese companies are emerging

Across the globe, Chinese companies such as Xiaomi, Oppo and Vivo are emerging in the low to mid-end segment. Actually, other well-known mobile brands such as Nokia, HTC and Blackberry also lost competition in the past. In this sense, LG is without exception. Even though LG’s smartphone division accounts for about 7% of revenue, it will be shut down by July 31. In South Korea, the division’s employees will be moved to other Electronics businesses such as Home Appliance & Air Solution.

The market share of top 5 smartphone companies became from 55% in 2015 to 70% in 2020. It means that oligopoly is proceeding in the market. Therefore, it is more difficult for existing and new players to compete with these top 5.

What can we learn from this initiative?

As we see the other article about LG’s possible exit from the smartphone market. What is key take away from this final decision?

Commoditization

First of all, smartphones are not our luxury products but our commodity now. Of course, the latest iPhone or Samsung’s high-end model is expensive. However, many people are affordable to purchase them or they are stick to their brands. In fact, Apple shipped more than 200 million iPhones in 2020 and this number is incredible. This is because, as we see the article about Lamborghini, the Italian company made profit by selling only 7,430 vehicles.

Therefore, when we compare the number between iPhone and Lamborghini, we can understand how smartphones are popular. Even high-end products like iPhones are affordable and available for most citizens in the world. It means competition becomes more difficult at the same time. How do smartphone manufacturers differentiate themselves from their competitors?

Brand

Therefore, brand is really important to attract customers in the smartphone market. Why do we purchase an iPhone? Probably many of us will answer “because we want to buy an iPhone.” Of course, some features including the quality of camera and the size of display are important. However, brand, user interface, software updates and services are critical for most of consumers.

In this sense, which smartphones establish their high-end brand? The answer is Apple’s iPhone or Samsung’s Galaxy. How about LG’s products? Probably “No”. This is the reason why the South Korean company lost the competition.

Furthermore, when it comes to the low to mid-end segment, consumers become more price sensitive. Thus, how do we reduce the cost of production, which leads to their low price? The answer is that human expenses are more crucial. As a result, Chinese companies have competitive edge in this aspect.

Of course, the competition in the smartphone market will not end. Therefore, small suppliers have to see how the market is going on and think of which company will be the next LG.

LG – Adobe Stock