LG Makes Plans to Exit the Smartphone Market

LG to Stop Smartphone Operations by July

LG Electronics (066570:KS), a South Korean electronics company, will exit the smartphone market this summer. LG was once the third-largest global smartphone maker and remains the third-place player in the US behind Apple (AAPL) and Samsung (005930:KS). However, the company has had difficulty keeping up with rivals recently and it wants to focus on other areas of its business. The decision followed a unanimous vote by the LG Electronics board.

LG will stop making and selling mobile phones by July 31. LG’s mobile unit has been unprofitable for 23 consecutive quarters, and total losses stand at more than $4.4 billion.

LG Shifts its Priorities

By exiting the smartphone market, LG Electronics can focus on growth drivers including electric vehicle components, home appliances, and robotics. The mobile unit represented around 8% of LG’s total annual revenue in 2020. LG warned the decision would hurt revenue in the coming months, but in the long run the changes will improve its financial health.

Analysts say that shedding its phone business could help the company’s annual profit increase by $708 million in the coming years. Investors cheered LG’s decision to stop smartphone production and the company’s shares climbed on the announcement.

LG Stuck in the Middle

LG’s smartphone difficulties have not been because of a lack of innovation. The company, which entered the mobile phone market in 1995, won several innovation awards for phone designs and features. However, it failed to win in the high-end user segment, which is dominated by Apple and Samsung. Most of LG’s smartphone sales came from handsets priced at $300 or less.

LG’s exit could pave the way for rivals with low-priced smartphones to gain market share. This could provide opportunities for Samsung, Google (GOOGL), and Chinese electronics companies. It is the end of an era for LG and investors are eager to see how the smartphone market will respond.

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