Hey.
On April 5, 2021, LG officially announced the termination of the production of smartphones. “LG’s strategic decision to exit the incredibly competitive mobile phone sector will allow the company to focus its resources on growth areas such as components for electric vehicles, connected devices, smart homes, robotics, artificial intelligence and business solutions, and platforms and services.”
In Russia, LG smartphones and phones have not played any role since 2015-2016, they finally disappeared from the shelves in 2018, when there were still some models. During this time, the brand managed to be forgotten, and news from other markets only showed that the company was not doing very well. The lack of production volumes did not allow the development of an interesting model range, the focus on individual flagships only emphasized this. The company’s mobile division has been bleeding to death for many years, but its fate, oddly enough, was decided long before that. The final point in the tragedy was not set on April 5, 2021, but in the early 2000s, when LG made a number of wrong decisions.
LG’s mobile division emerged in 1996, almost at the same time as Samsung’s. I will quote our material about the confrontation between the two companies:
“In the late 1970s, the company entered the international market. Around the same years, one of the most famous confrontations arose – the competition between Samsung and LG. Despite the fact that both companies had widely diversified businesses, it was in the electronics market that the clashes began. The founder of LG Koo In-Hwoi (Koo In Hwe) and the founder of Samsung Lee Byung-chull (Lee Byung-chull) are said to be addicted to electronics. Both businessmen at one time went to the same school, had family ties (their children got married) and treated each other extremely respectfully. When the government announced an 1969-year plan to support the development of electronics in 8, Lee Byung Chol went to Ku In Hwe and talked about plans to go into electronics. The LG leader took this news extremely negatively, allowing himself to raise his voice. At this their friendship ended, but rivalry began. This confrontation manifested itself in official statements, where corporations tried to pry each other, and in industrial espionage. “
In South Korea, the state encouraged competition among companies, but it always played the role of an arbitrator. It is impossible to call the South Korean economy regulated; nevertheless, corporations receive support in one direction or another or are deprived of it. In the confrontation between LG and Samsung, each company tried to occupy all the niches where the competitor was present. So, LG has historically produced electronics, following Samsung, invested in the production of components. But unlike Samsung, the electronics division was not successful. Exactly the same situation was at Samsung with the chemical direction, which shot at LG, but the competitor turned out to be weak. In 1997, with the filing of the South Korean government, the companies revised their plans, Samsung refused to compete with LG at the chemical production level, and LG sold its unprofitable chip manufacturing division. It is possible that it was at this moment that the countdown of the existence of LG’s mobile division could begin.
When both companies began their journey in the phone market, they were on an equal footing. South Korea has become a land of opportunity for mobile manufacturers, and many manufacturers have sprung up. The reason was that push-button telephones, on the one hand, were relatively simple, on the other hand, a full production cycle arose within the country, in which hundreds of companies were involved. In Finland or Sweden, such a miracle was impossible, in these countries there was simply no place for many companies, they relied on foreign markets, and bought components from outside. In South Korea, many of the components were produced in-house, or they were sourced from China. The explosive growth created fierce competition, which made South Korea’s home market a battleground where each manufacturer offered a different vision of a mobile phone. And this competition has to some extent shaped such companies as Samsung, LG, Pantech. They strived to provide the best product, integrate the latest technologies into their devices. The local market becomes a bottleneck, and outward expansion begins. For example, LG has been actively exploring the Russian market since 2001, at about the same time as Samsung. Due to expansion, the company’s sales are growing, by 2005 it is the fourth largest manufacturer in the world in terms of supply! The prospects are bright, and the perception of the LG brand is excellent, it is supported by unusual devices, a good price / quality ratio. In the media, you can find constant references to the expansion of Korean companies, their attack on Nokia, Ericsson and the fact that the latter will have to make room. In those years, no one spoke about Chinese manufacturers, and there were almost none.
Fierce competition between LG and Samsung gave both companies a big head start, by 2010, when the Android smartphone market began to develop and the mass consumer chose Android as a promising platform, both companies came up plus or minus with equal opportunities. They were represented in all markets of the world, had similar R&D centers and the same access to patents.
But it was the arrival of Android that marked the beginning of the end for LG. The standardization of the platform led to the emergence of Chinese companies that were able to create their smartphones from building bricks. Unlike Samsung, LG was not a vertical company, there was no production of components inside the company (the same screens do not count), for example, there was no memory or processors.
For LG, the struggle was due to the fact that the company received more than one opponent, as before, joined by newcomers from China who did not look strong, but were potentially dangerous in the long term. The bet was made on competition due to cost, the company released LG Optimus, in 2010-2011 it was one of the most affordable and interesting smartphones.
LG considered that the market should be conquered from the bottom up, offering an inexpensive smartphone, and then gradually expanding the line up. For example, Samsung chose a completely different path and offered flagships at first, and then they began to release more affordable models. By mid-2010, LG realized that growing market share was great, but in the absence of profits, it wasn’t very satisfying.
To quote a 2 review of the LG Optimus 2011X, it reveals the following twist in LG’s strategy:
“In 2010, Samsung made Android phones a priority and gave a lot of attention to the flagship Galaxy S. From the moment it went on sale, this device began to acquire fans at the speed of an avalanche, and its sales quickly reached 10 million units, which for a model in this price class phenomenal. We do not take into account the Apple iPhone, since this is a single product that lives by different laws, it is above the market, and the demand for it remains constant. There was not a single model in LG’s lineup that could come close to the Samsung Galaxy S in 2010. Considering that the company also relied on Android and was very successful in the middle and lower price segments with the Optimus line, it lacks its own the flagship was a tangible blow. For each manufacturer, not only the market share in piece terms is important, but also the amount of money earned. On flagship products, the markup is maximum, which allows you to earn more, even despite the disproportionately lower sales in unit terms compared to inexpensive phones. Apple’s example shows that by controlling only 3 percent of the market, you can make more profits than three companies (Nokia, Samsung, LG), which occupy almost 70 percent by piece.
Therefore, for LG in 2011, the priority is to increase the average price of the sold phone, and it is impossible to achieve this without having expensive models and flagships in the product line. Realization of this did not come at a time when the company began reorganization or it began to show negative quarterly results. The flagship from LG began to be created in the first half of 2010. Knowing that Samsung will release the Galaxy S in a short time, as well as the fact that all forces are thrown at this model, LG decided not to risk it and come out with its flagship later, but to provide it fully armed.
The company’s main problem is the lack of strong divisions that develop components, such as screens for mobile phones, processors or memory. If memory and processors are absent in LG historically, this decision was made many years ago, then the company produces its own displays for phones. And even supplies such screens to a number of manufacturers, for example, they can be found in devices from Apple. It is clear that the quality of such screens is high, so parity could be achieved here. But the company could not compete with Samsung in the field of processors. And so an external partner was needed, the only candidate was NVIDIA, known in the computer market as a manufacturer of graphics accelerators. About two years ago NVIDIA tried to enter the mobile phone market with its Tegra solution, and staked on the revival of Windows Mobile. But she missed, Microsoft decided to start life from scratch, and the devices never came into being. For NVIDIA, this meant two wasted years. On the other hand, the company was able to reorient itself to Android, which it did. LG and Motorola became the strategic and first partners for the company. Both manufacturers relied on SOC Tegra2, since Samsung could not use such a solution, this was in conflict with the development plans of the company’s division responsible for processors. In fact, at the same time, they were creating a similar system, codenamed Onion. Neither Qualcomm nor Texas Instruments were able to prepare similar solutions in the same time frame, they came out six months later. That is why both LG and Motorola chose NVIDIA’s solution, this is a successful attempt to separate themselves from the competitor.
LG made a tactically verified maneuver, chose a solution that was excellent in terms of capabilities, and tried to launch it earlier than a competitor. The main goal is not to sell the Optimus 2x widely, although this is the goal, but to put the idea in consumers’ minds that LG products can be high-tech and be at the forefront of technology. Thus, Optimus 2x will help sell other solutions in the Optimus line, as well as showcase the technologies that LG has available. A win-win”.
It is impossible to say that the Optimus 2X was a flop, it had good sales considering all factors, but they were not enough for LG. Another annoying factor was that the press was writing about Nvidia’s Tegra, less focused on the product itself. Inside LG, there was an undisguised irritation that the partner was more successful in communicating with publications, they talk more about the processor, and not about the smartphone itself. The promotion of the company’s flagship was not as bright as that of the Galaxy S, which also affected sales.
There are many turning points in the history of each company, each of which affects what happens in the future. The failure of the first Android flagship inflicted such pain on LG that until the last day the company tried to make excuses for it and released flagships that had to prove that they were hoo. Everything turned upside down when LG began to focus on the success of flagships, but it was a pursuit with no chance of success. Samsung was so firmly entrenched in the niche of flagships on Android, had such high sales that LG could not even come close to them. But they persisted in releasing flagships and gradually forgetting about the middle and budget segments. Compared to 2010, the picture has changed dramatically. It can only be described as a lack of a clear understanding of the smartphone market, tyranny of management. From dozens of conversations with top managers of LG both in Russia and in Korea, I got the strong impression that they live in illusions and for the desire to overtake Samsung, which is ingrained in the company’s DNA, they do not see what the market and customers need. A notable moment was the meeting in 2016, when I was invited to the Russian office of the company, where they solemnly showed a new product – a wired stereo headset for smartphones of any brand, and with good sound. I remember how dumbfounded I was from this one-on-one presentation, but even more I was struck by the reluctance to discuss smartphones, as if it was a shameful topic. In some ways, this became a wake-up call that inside LG they themselves do not believe in the possibility of supporting the existence of the direction of smartphones.
At that time, the black streak of the LG mobile division began, it was losing money. By the beginning of 2021, the company set a kind of record, for 23 quarters in a row LG was losing money on the mobile division, and the level of losses amounted to $ 4.5 billion. The CEO’s announcements that the company would return profits to the mobile division in 2021 looked like pipe dreams, which they turned out to be. Losing money for six years in a row, cutting costs, LG has not been able to achieve anything. The company lost to the Chinese manufacturers, the same Huawei / Honor became more successful, and there is also Xiaomi. LG found itself between the Chinese manufacturers at the bottom and Samsung / Apple at the top, where smartphone sales were not noticeable except in their home market.
The only question was how to pull the cord out of this enterprise. Throughout 2020, the company was looking for a buyer who could take the LG brand and continue to produce smartphones under it, but develop them independently and bear all the costs. There were no volunteers, because, unlike the same Motorola, the brand was actually destroyed in this category of devices and huge funds would have been spent on its promotion.
The dialectic of the birth and death of LG’s mobile division somewhat follows the market, but in many respects these are erroneous decisions that were made within the company. LG has always tried to oppose Samsung and came up with ways to differentiate itself from the competitor. If he comes out in the segment of flagships, then we will fill the market with inexpensive smartphones and will be glad that we have a larger market share. And the fact that in the next round we will lose our share and will not be able to release flagships should not worry us, this issue will be resolved by itself. LG lacked strategic thinking for this division, and it was largely absent due to the fact that there was no vertical organization, the company did not produce components for its products. The example of the same Samsung is good because it shows how all the individual productions affect each other. The company cannot engage in experiments, since in this case all production will suffer, they always need sales.
The smartphone market is in crisis, so there is a consolidation, weak companies leave, strong ones remain. The departure of LG does not have a big impact on the market, but for big LG this is positive news, once writing off losses, the company will free itself from the problematic resource. Smartphones under this brand are definitely not worth waiting for in the coming years, but someday, perhaps, they will be reborn. Who knows.
PS I wrote the text and thought about when Sony would pull the cord out of the life support system of the team that develops smartphones. But they are trying, trying to diversify their models, however, sales are very low.
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