LG becomes first major smartphone brand to withdraw from market

Chinese brands such as Xiaomi and Vivo, besides Samsung, are set to benefit from LG's absence in Latin America

Mock old version LG Electronics' smartphones — Photo: REUTERS/Kim Hong-Ji

05.Apr.2021 10:34 BRT
UPDATED 16:31 BRT

LG does have a sizeable presence in Latin America, where it ranks as the No. 5 brand;
LG’s smartphone division has logged nearly six years of losses totalling some $4.5 billion;
Its flagship models suffered from both software and hardware mishaps which combined with slower software updates saw the brand steadily slip in favour.

South Korea‘s LG Electronics will wind down its loss-making mobile division after failing to find a buyer, a move that is set to make it the first major smartphone brand to completely withdraw from the market.

Its decision to pull out will leave its 10% share in North America, where it is the No. 3 brand, to be gobbled up by Samsung and Apple with its domestic rival expected to have the edge.

In addition to North America, it does have a sizeable presence in Latin America, where it ranks as the No. 5 brand.

While rival Chinese brands such as Oppo, Vivo and Xiaomi do not have much of a presence in the United States, in part due to frosty bilateral relations, their and Samsung’s low to mid-range product offerings are set to benefit from LG’s absence in Latin America, analysts said.

Impact in Brazil

In a statement, LG Brazil said that the decision to close the mobile business was taken after an analysis of the business portfolio and thus the company will be able to explore and develop a new future competitiveness.

The statement also says that LG phones will be available for sale for a limited period of time, depending on the supply of each country. Consumer support will be available in accordance with current legislation.

“It is necessary to realize that although it was a difficult decision, it was inevitable, in order to keep up with changes in the industry and we can focus on making future technology available,” says the note.

The closure of smartphone production is also expected to impact a few hundred jobs in Brazil. The LG factory in Taubaté, in the state of São Paulo, employs approximately 1,000 people, 400 of whom work directly in the production of smartphones, says the workers’ representative entity.

It is not yet clear the fate of the plant and workers. The Taubaté Metalworkers Union approved a strike after information that the plant would be deactivated. According to the union, the deadline for LG to submit a proposal to workers is Friday, 9.

Six years of loss

LG‘s smartphone division has logged nearly six years of losses totalling some $4.5 billion. Dropping out of the fiercely competitive sector would allow LG to focus on growth areas such as electric vehicle components, connected devices and smart homes, it said in a statement.

In better times, LG was early to market with a number of cell phone innovations including ultra-wide angle cameras and at its peak in 2013, it was the world’s third-largest smartphone manufacturer behind Samsung and Apple.

But later, its flagship models suffered from both software and hardware mishaps which combined with slower software updates saw the brand steadily slip in favour. Analysts have also criticised the company for lack of expertise in marketing compared to Chinese rivals.

LG’s current global share is only about 2%. It shipped 23 million phones last year which compares with 256 million for Samsung, according to research provider Counterpoint.

LG’s smartphone division, the smallest of its five divisions accounting for about 7% of revenue, is expected to be wound down by July 31.

In South Korea, the division’s employees will be moved to other LG businesses and affiliates, while elsewhere decisions on employment will be made at the local level.

Analysts said they were told in a conference call that LG plans to retain its 4G and 5G core technology patents as well as core R&D personnel, and will continue to develop communication technologies for 6G. It has yet to decide whether to license out such intellectual property in the future, they added.

LG will provide service support and software updates for customers of existing mobile products for a period of time which will vary by region, it added.

Talks to sell part of the business to Vietnam‘s Vingroup fell through due to differences about terms, sources with knowledge of the matter have said.

LG Elec shares have risen about 7% since a January announcement that it was considering all options for the business.