LG was once the hottest smartphone brand in the world. Today, it is nowhere to be found.
During the early 2000s, LG was selling millions of smartphones. Its devices were stylish with limited edition collaborations with brands like Prada. LG phones came equipped with cutting-edge camera’s, bright screens and the fastest chips. Its dominance came to an abrupt end when Apple unveiled the iPhone. A precursor that sealed the fate of many established brands like Nokia, Sony and Blackberry.
In the last quarter of 2014, LG mobile phone unit shipments peaked at 20 million. After this, shipments started to drop drastically, falling to 16 million by the first quarter of 2017. LG market share in the global market for mobile devices to fall. While not as dramatically as Blackberry or Nokia, the Korean mobile device manufacturer gradually lost momentum.
In August 2016, LG enjoyed its largest market share, capturing 4.32 percent of the market. This figure fell to 3.82 percent just a year later and four years after its peak, LG’s market share had fallen to 1.96 percent. Along the way LG made critical errors that accelerated its dominance in the mobile space, with macro-economic factors amplifying the challenges it had yet to overcome. LG’s inability to regain its footing lead to the company announcing the shutdown of its mobile phone business in April 2021.
LG dominates
During the early 2000s, there were no signs that LG was bound to leave the mobile market. In April 2007, LG overtook Samsung average handset sale price. LG smartphones saw substantial quality improvement, with the average sale price increasing from $138 in the last quarter of 2006 to $158 in the first quarter of 2007. Samsung meanwhile saw its price falling from $168 to $155 over the same period. These prices are much lower than the thousand dollar plus devices we see today.
However, they signaled that LG saw strong appeal among consumers. Samsung’s decrease cannot be wholly subscribed to LG’s devices enjoying a better quality. Samsung introduced lower budget phones, which were meant for emerging markets like India and China. The company itself saw strong revenue and profit growth. LG enjoyed similar strong revenue growth, turning the losses at its mobile business unit into a healthy profit.
LG targets India
The sense of elation quickly vanished as LG executives started to realize that while selling high-end phones might look good on paper, the demand for such devices would eventually flatten as but a mere finite amount of customers exist within this segment. In a total u-turn, LG announced in October 2008 that it would start targeting emerging markets with phones priced between $100 and $150. LG effectively admitted that Samsung was onto something by lowering the unit price and focussing on developing markets.
Chief Financial Officer at LG Electronics, Jung Do-hyun, commented the company would focus on single-digit profit margins in low-end markets by 2011. The manufacturer would start expanding its outsourcing channels to enable cost cutting and restructure to maintain operational flexibility required to grow in these extremely volatile markets. The change of strategy was in part fueled by the changing economic outlook, which was bound to cut deeper into LG sales.
The focus on single digit profit margins is a major step away from the 14.4 percent and 11.5 percent it enjoyed in the previous quarters. LG spokesman, Park Seung-koo, explained that the company failed to capitalize on emerging markets across Asia, including India and China. Adding that the company has been reluctant to tap into the low-end smartphone market, fearing it would hurt its brand image. The stance isn’t surprising, considering the manufacturer had been heavily pushing its Prada collaboration back in 2007.
The surprising candidness of LG shows that the challenge to recover lost sales was greater than initially anticipated. An LG insider told the Korea Times that the company had been particularly weak in these emerging markets compared to its rivals and now had to drastically change course to catch-up and capture whatever market share was still available.
Samsung’s aggressive expansion
In September 2010, Business Standard spoke with Director of Mobile & IT at Samsung Electronics, Ranjit Yadav, about Samsung’s plans to capture 23 percent of the mobile market in India. Samsung was planning to expand its dominance by introducing phones geared toward this emerging market. These smartphones would be accompanied by tailored advertising campaigns and consumer outreach programs.
Samsung uses a strategy of expanding its product portfolio to accelerate momentum in the regions it targets, Yadav explains. Teams in India are working to deliver innovative browsing and wireless communication protocols that cater to local demands. Yadav notes that consumers used their phones as communications hubs, serving as a gateway to communicate with friends, family and the world.
The maturing Indian smartphone market allows Samsung to bring these innovative technologies to audiences across the region. In order to capture as much market share as possible, Samsung priced its devices extremely competitively, targeting a wide range of consumers. Yadav said the company would launch around 17 devices priced between 3900 Indian Rupee ($46,77) and ($479,71). Samsung effectively captured every smartphone segment available in India.
Samsung’s bet paid off. At the time of the interview, Samsung had a market share of 10 percent. By the end of 2010, the market share had grown to 10.82 percent. While well below the desired 23 percent, over the course of 2011, Samsung’s market share in India started to grow exponentially. In December 2011, the smartphone manufacturers share had grown to 20.31 percent. Samsung’s market share would eventually peak at 32.95 percent by August 2014.
LG fails in India
LG meanwhile was struggling to capture any meaningful market share despite its ambitions to grow its presence in the country. In July 2013, LG said it wanted to capture 10 percent of the smartphone market in India. In reality, LG would never reach more than 2 percent of the Indian market. At the time Samsung said it wanted to aggressively expand across the Indian market, LG had but 0.34 percent of the market.
LG was hoping to curb some of Samsung’s momentum by introducing phones specifically tailored to the Indian market. In April 2011, LG unveiled its top-end smartphone for the region, the Optimus X2. A heavy duty phone rocking a Nvidia processor, becoming one of the country’s first dual-core processor phones.
This wouldn’t be the last high end phone LG would bring to India. In July 2013, LG announced the Optimus G Pro, which would retail at $509,7 (42,500 India Rupee). LG had a similar approach to Samsung by introducing a wide range of different devices across all price ranges. However, as in Korea several years prior, LG didn’t undercut Samsung, who was pushing far into the low-budget space.
As 2011 came to a close, little had changed, with LG closing the year with a meager 0.59 percent in December 2011. LG’s market share peaked in July 2012, with 1.37 percent. Samsung’s market share had grown to 27.65 percent in the same period. In December 2012, LG ‘s market share had grown to 1.13 percent. The problems for LG got amplified as all this occurred as the economic climate began to cool down.
Global recession bites LG
The fortunes of LG started to quickly turn for the worst as the Great Recession started to move around the world. In February 2009, LG Electronics announced it aimed to cut costs by $2.2 billion, as it was expecting sales to drop by 20 percent. The firm wanted to reduce costs to prevent job losses across its 82,000 employee strong global workforce. The year 2009 was also the year that LG unveiled its first Android phone set for the European market.
Analyst at Woori Investment & Securities, Kevin Lee, explained to Reuters that there was no solution to be found at the demand side, forcing LG to explore alternative avenues to reduce costs. Adding that rolling out massive job cuts wouldn’t be easy given the work culture in South Korea. Workforce reductions are a last resort for Korean companies.
LG’s financial outlook however looked bleak as the recession was deepening. Hence, the inevitable happened, with LG Electronics announcing in 2011 it would be laying off 30 percent of its overseas mobile staff. The lay-offs come as the manufacturer experienced its fifth consecutive quarterly loss. Reuters commented that competition in the mobile space put massive pressure on its handset division.
In 2016, LG Electronics said it would be scaling down its handset business and focus on more profitable business endeavors. The company planned to reduce the workforce from 8,049 to 7,321. In an internal email, Chief Mobile, Cho Juno, said the company should remain quick and agile in its human resources operations. Scaling down its operations would give the company the necessary leeway to cut costs in an ever more competitive market.
LG scales down mobile business
The inability of LG to recover suggests management was failing to build devices that appealed to the masses or didn’t target the right market. As LG was starting to scale down its operations and went into cost cutting mode, global smartphone sales began to skyrocket. The year when LG announced it would lay off 30 percent of its overseas mobile staff, 2011, saw 472 million smartphones sold to end users. This number increased to 680.11 million in 2012.
After 2012, numbers started to increase as economies started their road to recovery. In 2014, global smartphone sales exceeded 1 billion, reaching 1.24 billion units sold to end users. Meanwhile, LG market share started to dwindle as stated in the opening paragraph of this analysis. Admittedly, there was little time for LG to regain its footing, as shortly after it was reorganizing its operations, smartphone shipments started to peak for all vendors.
In the United States, 117.18 million smartphone units were shipped in 2013. This number peaked in 2017, when shipments peaked at 163.82 million, gradually falling to 139.53 million in 2019. Estimates expect shipt to fall to 110 million by 2026. These figures reveal a contracting market, or red ocean, where a limited number of players can still compete. LG hoped that it could turn the tides by replacing senior executives.
LG CEO shuffle
The company hoped to turn the tides by appointing a new CEO for its mobile division in November 2017. LG announced that Hwang Jeong-hwan would become the new CEO at LG Mobile Communications, replacing Cho Jun-ho, who would take on a new role within the company after serving 3 years at the head of the mobile segment. The shuffle comes after LG kept struggling to gain significant momentum for its mobile sales.
Hwang’s primary task would be to steer the mobile division toward profitability. The mobile division meanwhile had been turning a loss for the 10th consecutive quarter, proving to be a tough challenge for the newly appointed chief executive. Hwang would also see increased pressure as its home appliance business has seen strong performance, Yonhap News noted. Its mobile division was still struggling to curb the strong dominance of Samsung and Apple with its iPhone.
The replacement of executive teams across LG has seen multiple shake-ups, as back in September 2010, LG Electronics CEO, Nam Yong resigned after poor results in its mobile division as a result of poor management. Yong was replaced by Head of trading firm LG International, Koo Bon-joon. LG wasn’t the only who fired an executive, Reuters noted, as in the same week, Nokia fired Olli-Pekka Kallasvuo after poor results.
The haphazard shuffles in managers across established manufacturers signaled desperation, as current executives were unable to withstand the rapidly changing dynamics in the mobile market after the launch of the iPhone in 2007, Reuters commented. Fund manager at AIG Investments in Seoul, Lee Yong-jik, told the news agency that LG hoped that Koo Bon-joon would come up with a strong answer to narrow the gap between Apple and other leading brands.
In hindsight we know that these multiple shuffles over the course of seven years, have done little to slow down the rapid rise of Apple and Samsung. One might also argue whether the newly appointed CEO could change the massive organization that was LG fast enough to deliver a product that could compete with Apple’s new product and Samsung’s massive warchest and strategic vision to capture emerging markets where cheaper products could still capture significant sales volume.
Reignited ambitions
As LG rolled into 2019, LG, together with Sony, experienced difficulty to lift mobile device sales. Earning releases from LG, cited by the Verge, showed smartphone sales fell by 21 percent compared to the same period last year. Sony didn’t fare much better, seeing smartphone sales drop by an eye watering 30 percent. LG pointed toward intensified market competition and slow sales of its 4G models as the primary cause for its lackluster performance.
In January 2020, Chief executive at LG Kwon Bong-seok said the company was confident that its loss making mobile division would become profitable by the end of 2021. Kwon explained during a press conference, cited by the Korea Times, that the company would be expanding its mobile line-up, aiming to steadily release new devices that would woo consumers. The senior executive didn’t elaborate which devices would help LG reclaim profitability.
The press conference was quite unsatisfactory for many observers, as Kwon refrained from zooming in on the lackluster performance in its mobile division. Despite the obvious, Kwon remained optimistic about the company’s outlook. This statement came as LG was also seeing less than desirable results in its automotive components business. The timing couldn’t be more ominous for LG, as shortly after, smartphone sales would nosedive.
In June 2020, a Gartner report revealed that global smartphone sales had fallen by 20.2 percent in the first quarter of 2020 due to pandemic lockdowns. Senior research analyst at Gartner, Anshul Gupta, remarked that the smartphone market experienced the worst sales decline in its history. Apple and Chinese brands felt the slow down particularly hard as factories in China shut down and reduced demand from consumers who were now left indoors.
Samsung was able to reduce the decline by building an inventory for its upcoming new device launch, however, its online channels were insufficient to counter the closing of retail outlets. Despite the slowdown in sales, Samsung’s situation could’ve been much worse, Gupta notes, as the Korean brand had limited presence in China and no smartphone manufacturing facilities in the country.
Mismanagement of LG Display
LG’s business as a whole was unable to recover from the economic slowdown that occurred as the pandemic was moving across the globe. Its display business saw revenue drop by 6 percent to $4.72 billion between July and September 2022, with the entire business clocking in at a loss of $551.35 million over the same period. LG’s executives noted its display business unit would make financial stability its top priority. The statements are eerily similar with previous years, as the company fell into further financial chaos.
Nikkei Asia noted that LG initially planned to shut down its display business unit, announcing in January 2020 it would stop manufacturing panels for television due to strong competition from Chinese brands who flooded the market with cheaper alternatives which had rendered the business unit unprofitable. LG reversed this decision to shut down LG Display as prices started to normalize. But as prices started to drop again, LG said it would shut down LCD panel production in South Korea by the end of 2023.
As outsiders it’s unclear why executives at LG decided to shut down, then to re-open and to shut down its display business again within the span of just a few years. However, the troubled decision making surrounding LG Display is emblematic of the wider mismanagement that the company experienced in its mobile division. Shutting down business units brings great uncertainty for suppliers, who now deem the company as untrustworthy.
Shutting down mobile
In April 2021, LG announced it would shut down its mobile phone business, stopping all activities globally In the press release the company said it couldn’t compete in the extremely competitive mobile phone sector, deciding to allocate its resources into growth areas such as electric vehicles, connected devices, robotics and other services. After years of trying to recapture the momentum it enjoyed almost two decades prior, the electronics manufacturer finally threw in the towel.
The writing was on the wall for many careful observers. The iPhone came in like a wrecking ball, throwing all strategies off course. Manufacturers were scrambling to come up with an answer for the iPhone, which revolutionized the way we interact with our devices. Google meanwhile rendered all existing mobile operating systems obsolete. Assets that established manufacturers were carefully safeguarding.
The technologies that ran most popular devices were immediately outdated compared to the smooth, internet connected experiences Google and Apple had presented to the public. The app stores were yet to become the vibrant ecosystems they are today. A trump card that no other manufacturer had. Established brands who refused to welcome Android, were destined to become relics of a bygone era. But LG had more problems on its hands than just the operating system.
During the early 2000s, LG was very concerned with creating the best, most advanced devices, whilst its primary competitor Samsung was expanding its business elsewhere. Primarily in developing markets. Markets LG deemed were beneath them. They would merely dilute the brand, eroding the reputation the company had so painstakingly crafted for itself. This might be one of the deciding factors why LG couldn’t recover. Just like executives in its display business unit, LG was unable to make up its mind whether or not to enter, remain or leave a market.
Once it decided the time was right, its competitors already had a head start. Samsung was rapidly capitalizing the Indian market, enjoying increased momentum thanks to Nokia’s decline. LG knew it couldn’t leave behind. But all its efforts were to no avail. Its efforts weren’t aided by introducing expensive, top of the line devices in a market that was to grow into a middle income society.
Factor in the economic meltdowns during the great recession and the global pandemic, LG’s mobile downfall suddenly wasn’t such an outlandish prediction for those who betted against the company. LG would’ve needed far greater resources to weather these storms. Ultimately, it could do little to remain afloat and its mobile division ultimately sank for ever.
