One of the greatest challenges in the corporate world is knowing when to stop. One-off losses are part of the game, as well as fierce competition. Turnarounds are always a possibility, and the good times are just that, moments – you can go from heaven to hell in a matter of months.
For South Korean LG Electronics, the time to stop came in the 23rd quarter of consecutive losses. After losing $4.1 billion in almost six years, the chaebol (a large family-owned business conglomerate) announced last Monday (April 5) that it will end cell phone manufacture next July 31st.
The news did not take anyone by surprise. Since January, rumors indicated that LG was trying to dispose of this unit, the only loss-maker division of its conglomerate – LG’s operations go far beyond TVs and home appliances; it comprehends business in the telecommunications, energy, and chemical sectors. Failing to pass the business forward, the end of the division’s operations was imminent.
It is tough to find an exact explanation for what happened to LG in such a competitive and homogeneous sector. After all, the company used the same Android as Samsung‘s successful Galaxy and the same chips from Qualcomm and Mediatek that equip all mobile phones sold in the West that aren’t called iPhone. Sometimes she got it wrong in pricing, in choosing components, in exclusive differentials, in marketing. Perhaps that was the problem; something circumstantial, a series of small but strategic errors. Perhaps the devil is in the details.
LG had been manufacturing mobile phones for 26 years and peaked between 2009 and 2010, not with smartphones, but with feature phones, those simpler phones, without as many features as we have today. It was an especially curious moment.
The years that followed were turbulent, but in 2013 LG set the tone with Android, made good launches on its G line, and became the third-largest manufacturer globally, behind only another chaebol, Samsung, and Apple.
Their cell phones were ok, possibly exceptional, often innovative – the G2 of 2013, for example, was one of the first to abolish the physical buttons in the front area, something that is now commonplace even in entry-level models. Now and then, LG innovated too much – the 2019 G8 “Hand ID” made a lot of journalists (and, perhaps, just them) shake their hands in front of the phone in a ridiculous way to try to unlock the device. Unsurprisingly, this feature did not stick around.
After 2013, it seems that LG was short of breath. Not by chance, the beginning of its decline coincided with the global expansion of super-competitive Chinese brands (Xiaomi, Huawei, Oppo, OnePlus). Today, LG still has some oasis of moderate relevance. It occupies the fifth position in volume of cell phone sales in Brazil, with 7.2% of the market, behind Xiaomi. In the United States, where Chinese brands (so far) have no place, LG remains on the podium, in third place, with 10% participation in the market. The data are from the Euromonitor consultancy via Folha de S.Paulo.
But the thing is, the world is much bigger than Brazil and the U.S. According to another consultancy, Counterpoint, in 2020, LG’s global market share was a measly 2% – so small that the brand ended up being swallowed up by the item “Others” in the ranking of the largest companies of the sector. To put this percentage in perspective, in the period, LG sold 23 million units while the leader Samsung put 256 million on the streets (eleven times more devices).
Although not surprising, the news saddens. At the height of LG in the era of smartphones, I had the opportunity to test several of its devices. Premium ones, like G3 and G4, were very good. The intermediaries, equivalent to today’s K series and that account for the bulk of sales (from LG and any manufacturer operating in multiple price ranges), no so much.
The Nexus model, made in partnership with Google, had an unbeatable cost-benefit ratio – I had a Nexus 4 as a personal cell phone, and I liked it. Occasionally, the South Koreans did some things that seemed magical, like the G Flex, a curved screen cell phone; the Wing with its two “T” screens; and the (now stillborn?) model with a roll-up screen introduced at CES this year.
It is worth noting the willingness that LG has always had in taking risks. Perhaps this also contributed to this melancholic outcome. There are those who say – and the numbers support the hypothesis – that the 2016’s G5 was the responsible for derailing LG’s cell phone train: despite the cool aluminum look, which resembled the alien from the film The Day the Earth Stood Still, the modular accessories system not only did not thrill, but it generated a cold reception from the specialized critic and the public. Sales have plummeted since then.
LG is the first major mobile phone brand to abandon this market altogether. Some may consider Microsoft to be a pioneer in terms of withdrawal, but recently the company has returned to the game with the controversial Surface Duo. Others, such as the Japanese Sony and Taiwanese HTC, have retracted quite a bit over the years, but continue to operate in selected markets. Iconic brands such as BlackBerry and Nokia have been outsourced (to OnwardMobility and HMD Global, respectively) and are still alive. But LG’s cell phones, starting on July 31st (or while supplies last), will only be a souvenir.
LG is gone; life goes on. Samsung, Motorola, HMD Global, and the Chinese brands will probably feast on the now-unowned market shares, according to analysts polled by Reuters. Apple, which only sells high-end phones, is unlikely to benefit.
For the few consumers who opted for an LG cell phone, doubts remain. In its brief, fateful statement, LG assured that “it will offer support service and software updates to consumers of existing models for a period that will vary by region.” Questioned by some news outlets, the Brazilian subsidiary was unable to answer how this will happen here.
For those looking for a new cell phone, an LG device at this point only it’s not a good idea. More dramatic uncertainties have the employees of the LG factory in Taubaté, Brazil: 400 people dedicated to the cell phone production lines, in addition to those of three other factories in the city of São Paulo that work exclusively for LG.
The situation was though before, under a strike warning due to uncertainties about the company’s future, which, now, are confirmed by the bad news. On Tuesday (April 6), LG confirmed that it will take the production of computer screens and televisions to Manaus (AM), Northern Brazil, and will maintain only administrative and support services in Taubaté.
Translated by Fabiane Ziolla Menezes