[Comprehensive] "All Possibilities Left Open" LG Phone Finally Abandoned... Cumulative Losses Reach 5 Trillion Won

[Asia Economy reporters Seulgina Jo and Heungsun Kim] "We have left all possibilities open." LG Electronics is finally entering the process of winding down its smartphone business (MC). The MC Business Division, which has recorded losses for 23 consecutive quarters and accumulated losses amounting to around 5 trillion won, has been considered a painful point for LG Electronics. Despite repeatedly denying rumors of sale or withdrawal, LG Electronics has now effectively acknowledged the withdrawal rumors, stating, "It is time to make the best choice by coldly assessing current and future competitiveness."

On the 20th, Kwon Bong-seok, CEO of LG Electronics, expressed this position in an email sent to members of the MC Business Division regarding business operations. CEO Kwon hinted that various options, including the sale of the mobile business, are being reviewed and mentioned, "Regardless of how the business operation direction is decided, employment of members will be maintained in principle, so there is no need to worry."

LG Electronics also explained in an official press release, "We believe it has reached a point where we must make the best choice by coldly assessing the current and future competitiveness of the mobile business," adding, "We are currently keeping all possibilities open and carefully reviewing the direction of business operations." They further stated, "Once the direction of business operations is decided, we plan to share it transparently and promptly with the members."

◆ Amid Rollable Phone Praise, Sale Rumors Spread... How Did It Start?

Rumors about LG Electronics withdrawing from the smartphone market are not new. Since 2015, the division has recorded annual losses of 900 billion to 1 trillion won, earning a reputation as a burden even within the company. Some have evaluated it as a business that could be wound down at any time, a finger to be folded for strategic selection and concentration. The MC Business Division has posted operating losses for 23 consecutive quarters since Q2 2015, with cumulative operating losses reaching about 5 trillion won by the end of last year.

Particularly, this restructuring rumor attracted more attention as LG Electronics' next-generation smartphone, the rollable phone, has been receiving favorable reviews. The starting point was workforce adjustment. LG Electronics has recently been restructuring to reduce the role of the MC Business Division. The plan is to focus on developing high-end smartphones like the rollable phone while switching mid- to low-end phones to an Original Design Manufacturer (ODM) model. Specifically, about 60% of MC Business Division employees are being transferred to other divisions, and voluntary retirement is being accepted, which has fueled speculation that LG Electronics will soon officially confirm the smartphone withdrawal rumors.

This move was also significantly influenced by Koo Kwang-mo, Chairman of LG Group, who has actively promoted new businesses and boldly wound down loss-making businesses since his inauguration. Accelerating the group's structural reform, Chairman Koo reportedly emphasized to LG Electronics management the message of "focusing on businesses that can succeed," similar to LG Display's LCD business. An industry insider said, "Chairman Koo's decision was significant," adding, "It is about making a cold judgment on business competitiveness."

LG Velvet

◆ Velvet, Wing... Consecutive Defeats and 5 Trillion Won in Cumulative Losses

As the global smartphone market becomes increasingly competitive, LG phones' market position has been shrinking, which is another reason LG Electronics is considering withdrawing from the smartphone business. Internally, it is understood that LG has judged it has not gained an advantage in competing with Chinese smartphone manufacturers' cost-effective mid- to low-end products nor with premium products from Samsung Electronics and Apple.

Moreover, the results of last year's ambitious product lineup revamp, including the LG Velvet and Wing, were disappointing. The LG Wing, which emphasized form factor innovation, was the first product of the "Explorer Project," but domestic cumulative sales reportedly did not even reach 100,000 units. The Velvet, targeting the quasi-premium market, was criticized for missing both price and performance. The recently unveiled rollable phone, shown in short videos, has attracted interest and praise from consumers and foreign media alike, but there are concerns that the rollable phone alone cannot guarantee the future of the MC Business Division, which has accumulated losses of about 5 trillion won.

An LG Electronics official said, "To improve the business structure of the MC Business Division, we have made strenuous efforts over the past few years, including improving the product portfolio for efficient resource management, adjusting global production sites, and launching innovative products," but acknowledged the painful result of "23 consecutive quarters of operating losses since Q2 2015." The expansion of the ODM ratio, which sparked the withdrawal rumors, is also seen as a stark reflection of the current state of LG Electronics' smartphones. Ultimately, as stated in the official position announced that day, it has reached a point where the best choice must be made by coldly assessing current and future competitiveness.

However, some voices suggest that it may be difficult to give up the smartphone card. At a time when connectivity with artificial intelligence (AI) and the Internet of Things (IoT) is gaining attention, LG Electronics might choose a strategy to maintain smartphones as a core platform to create synergy.