LG possibly exits its smartphone business

As of February 9th 2021, several media including the Verge reported a rumor that the South Korean multinational electronics company, LG Electronics, possibly exits the smartphone market. Of course, the company has not made a final decision yet, but one reason why the South Korean electronics giant considers withdrawing the multibillion US dollars market is to lose around $4.5 billion over the past five years. In fact, this number is huge and can you imagine that the company continues its smartphone business, even though it loses almost $1 billion every year? At the same time, this tenacity shows how attract the smartphone market is.

In 2015, LG Electronics accounted for about 4 to 5% of global quarterly market share, but the number is about 2% or less than 1% in 2020. This figure shows that the South Korean company loses the competition with not only existing competitors such as Samsung and Apple but also Chinese emerging rivals such as Huawei, Xiaomi, OPPO and Vivo.

Sell or Downsize?

Other than exiting the market, LG Electronics has two more options: Sell or Downsize the business. However, it seems difficult to sell the business that loses about $1 billion every year to other companies, even though the selling price is not high. If you were to be the CEO of other companies, can you make a decision to purchase it?

Final option is to downsize the smartphone business, but it is also difficult to find a good rational to support this decision. This is because LG Electronics does not establish a better position in the market. To be specific, in the high-end model, iPhone is a clear champion and its South Korean rival, Samsung, takes a position as well. On the other hand, in the low-end model, Chinese makers are rising. Thus, is it a matter of time for the company to sell smartphone business?

Who is LG Electronics?

According to LG Electronics’ homepage, the company was founded in 1958 and its philosophy revolves around people, sincerity, and sticking to the fundamentals. The company is comprised of five companies: Home Appliance & Air Solution, Home Entertainment, Mobile Communications, Vehicle Component Solutions and Business Solutions. It operates in more than 140 locations around the world with 2018 global sales of USD 54.4 billion (KRW 61.3 trillion).

The smartphone market

The smartphone market is matured. For specific, the number of smartphone shipment was about 173 million in 2009 and about 1300 million in 2014, respectively. The smartphone shipment was more than 7 times for only 5 years. We assume the average price of a smartphone was $200 in 2009, so the market size was almost $35 billion at that time. In addition to this, we do the same calculation by assuming that the average price of a smartphone was $300 in 2014 so that the market size became $390 billion. This number was already incredible, but one more surprising thing is that the market was grown by more than 10 times for only 5 years.

However, the number of shipment is stagnant now. In fact, it was about 1400 million shipments in 2018. If we assume the average price of a smartphone was $400 in 2018, the market size is almost $560 billion. Even though the smartphone market is matured, its size is still attractive and this is one reason why Chinese new manufacturers enter the market. At the same time, this trend makes old players including LG difficult to survive. As we see the other article about the challenge of Blackberry, there might be a solution to revive its business. We do not know the best action now, but it seems that the time for the South Korean company to make a decision is coming.