LG enlivened the phone industry but failed to find a real place — Industry Voices: Baker

LG at Costco
LG was having trouble holding its own on its home ground in South Korea. (Wave7 Research)
Industry Voices Simon Baker

LG's announcement on April 5th that it was withdrawing from the production of mobile phones was widely expected as a badly kept industry secret. The company's demise in phones had been evident for several years.

In the last quarter of 2020 it was still however selling over five million phones, nearly half of them in the U.S., according to IDC data. Its retreat to the Americas – it was still doing well in Brazil – had helped stabilize the brand.

But share was falling in the U.S., despite this being a market where the level of competition in Android is muted.
And LG was having trouble holding its own on home ground in South Korea, another market where Chinese rivals are not in the picture.

Crucially, it had failed to make much progress in 5G. Along with Samsung, LG had a head start in 5G with South Korea's launch status. 5G was half of its sales in Korea at the end of last year, but the country is not a big market, and in the U.S., LG 5G sales were faring badly.

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With no momentum in 5G, LG stood little chance of maintaining a stable if modest position in the global market. With the company saying it had lost $4.5 billion in the smartphone business, according to Reuters, it was time to call it quits.

What lessons can be learned for the smartphone industry from LG's demise?

Innovation does not necessarily equate to sales

LG had a strong track record of technical innovation, including touch screens (Prada, 2006) and wide angle camera lenses (G5, 2016). It was making progress in rollable displays, and had recently shown a prototype. It was early into 5G via the Korean domestic market, and its first production models appeared to be at least as good as those from Samsung, but to little avail. 

LG came up with some of the most individualistic ideas of recent years, including swappable parts (G5, 2016), a second display (V50, 2019), and the LG Wing (2020), which allowed a second screen to turn into a T shape. The trouble with these designs were that they were quirky without generally solving any real perceived user need. 

LG generated publicity through these designs, but while there are lots of complaints that all smartphones look the same these days, there isn’t much evidence that consumers want to buy anything very out of the ordinary. They are much more focused on specs and battery life than they are on design originality. The days of the visually different smartphone seem over. 

It is hard to play second fiddle

LG never really came out from under Samsung’s shadow. Despite its quirky products from time to time, there was often a quality of sameness about the Korean output in general, and Samsung was always the bigger, pushier and more marketing-oriented brand. Years ago, in the feature phone era, when the Koreans were the best in flip phones, LG was known as "the brand people bought when Samsung models were out of stock." LG seemed to be stuck in Korean copycat rivalry, fated to have to try and compete with its bigger rival, but accepting that it would not be able to best it.

It is difficult to turn around a brand when it starts to sink. Lower sales mean lower profit which means less marketing, the more dynamic employees start to leave, and so it goes. LG was heavily focused on sales through mobile operators, which required less marketing but restricted its retail coverage. 

Unless you are a big player, keep your product range simple

The concept of critical mass is very important in the phone business – not just at the vendor level but at the model level too. If you don't have substantial market share, stick to something simple. LG's sales tended to be spread out across a lot of models.

Vendors on the way up tend to have few models but expand their product range; on the way down they often neglect to trim down what they offer, relegating most of their output to irrelevance as no individual model captures enough consumer attention. 

LG made 265 million smartphones in the last six years of consecutive losses, which works out at around a $17 loss per phone. To make money, Android players need to have some combination of substantial share, low production costs, a big home market and easy access to capital. 

As a major industrial conglomerate whose phone operations were only around 8% of turnover, LG had been able to absorb the losses; in fact LG's financial performance has been improving, and it made nearly $3 billion in operating profit on a turnover of $56 billion in 2020.

But arguably after six years of consistent losses in smartphones it took LG too long to pull the plug. 

LG's passing in phones reflects a clear feeling in the industry that, with the notable exception of Samsung, it is the "Manifest Destiny" of the New Wave Chinese brands to dominate Android, and it is time for the early players to reassess and maybe move on.

A similar choice is faced by Sony, also now a bit player in smartphones and mainly focused on its home market in Japan. So far, management has fended off shareholder criticism of losses on smartphones on a rationale that being in phones is important to it keeping a role in 5G.

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When European and American companies fell out of the phone mass market years back, they did not leave much of a legacy behind them. The difference this time round with the Asian pioneers, as some in turn pull back, is that their focus on internal manufacturing competencies still leaves them as key industrial players in the business, even if not brands any more. 

If Sony stopped making phones itself, it would also still have profits in its booming business of selling image sensors for smartphones. 

LG similarly will remain a major supplier of OLED screens to Apple and other erstwhile phone rivals, as well as big screen TVs. It has made missteps here too, switching late from LCD to OLED, but it is still an important supplier. 

LG's withdrawal from the business is not so much a goodbye, more of a transition. But with it goes one of the industry's most distinctive players.

Simon Baker is program director for mobile phones and consumer devices at IDC EMEA and a coordinator of IDC global forecasting for the 5G smartphone market. He is a long-time analyst in the mobile phone arena. Please contact him at [email protected]

Industry Voices are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by FierceWireless staff. They do not represent the opinions of FierceWireless.