LG Electronics Makes it Official – Mobile Phones Out
After a board meeting today, LG Electronics (066570.KS) made the closing of its mobile business official, something that had been rumored about for months. The decision, according to the company, will allow a focus on higher growth areas such as electric vehicle components, connected devices, smart homes, robotics, artificial intelligence, and BTB solutions. The company will still provide support and software updates to customers ‘for a period of time which will vary by region’. Details relating to employment will be made at the local level. All in, the closure is expected to be completed by July 31, although existing inventory could remain available longer and production will continue through the end of May. LGE’s JV with Canada’s automotive module supplier Magna International (MGA) is expected to begin in July.
After many quarters of losses (23 consecutive), it is not surprising that LGE is closing the mobile business. The company has not been particularly successful in developing or marketing its mobile phones and while it has come up with some interesting mobile phone concepts over the years, most have not caught the attention of consumers, leaving LG’s share of mobile phone shipments below 5% since 2014 and over the last year at 2% or below. While LG Display (LPL) will lose a customer, at between 5.5m and 7.3m units/q, they should be able to make up that loss as they increase their iPhone production share and develop other customers.
We expect LG Display realized the inevitable end to the LGE mobile business back in January when the company sent an e-mail to the company’s Mobile Communication division that was intended to ‘calm’ them in anticipation of the company’s announcement of its financial results near the end of the month as the financial results are usually followed by a review of the company’s plans and expectations for each segment. The e-mail mentioned that mobile communication division employees, regardless of what decisions are made, will remain with the company ‘as a general rule’ and should not be anxious, although it certainly seems that management was about to make some changes to the division. Discussions with Vingroup (VIC.VN) and Volkswagen (VOW.GR) did not prove fruitful.
BOE (200725.CH) and Tianma (000050.CH) were also suppliers of displays to LGE, but primarily through ODMs, which accounted for between 70% and 80% of LGE’s total smartphone shipments in recent quarters. LGE is expected to compensate its suppliers for inventory assets and investment costs but to what degree is unknown. The company says ‘we plan to cooperate sufficiently if there is a part to discuss with existing business partners,’ and the continuing production mentioned above is said to be to honor commitments made to suppliers. Communications division staff will be transferred to other business units or affiliates.
After many quarters of losses (23 consecutive), it is not surprising that LGE is closing the mobile business. The company has not been particularly successful in developing or marketing its mobile phones and while it has come up with some interesting mobile phone concepts over the years, most have not caught the attention of consumers, leaving LG’s share of mobile phone shipments below 5% since 2014 and over the last year at 2% or below. While LG Display (LPL) will lose a customer, at between 5.5m and 7.3m units/q, they should be able to make up that loss as they increase their iPhone production share and develop other customers.
We expect LG Display realized the inevitable end to the LGE mobile business back in January when the company sent an e-mail to the company’s Mobile Communication division that was intended to ‘calm’ them in anticipation of the company’s announcement of its financial results near the end of the month as the financial results are usually followed by a review of the company’s plans and expectations for each segment. The e-mail mentioned that mobile communication division employees, regardless of what decisions are made, will remain with the company ‘as a general rule’ and should not be anxious, although it certainly seems that management was about to make some changes to the division. Discussions with Vingroup (VIC.VN) and Volkswagen (VOW.GR) did not prove fruitful.
BOE (200725.CH) and Tianma (000050.CH) were also suppliers of displays to LGE, but primarily through ODMs, which accounted for between 70% and 80% of LGE’s total smartphone shipments in recent quarters. LGE is expected to compensate its suppliers for inventory assets and investment costs but to what degree is unknown. The company says ‘we plan to cooperate sufficiently if there is a part to discuss with existing business partners,’ and the continuing production mentioned above is said to be to honor commitments made to suppliers. Communications division staff will be transferred to other business units or affiliates.
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