'Achilles' Heel' MC Division Downsizing... LG Electronics Considers Partial Sale Possibility

Future Scenario
Excluding Core MC R&D Personnel
Likely to Sell Only the Production Division

LG Electronics unveiled the next-generation smartphone 'LG Rollable' at the CES 2021 press conference on the 11th.

[Asia Economy Reporter Cha Min-young] LG Electronics has hinted at the possibility of withdrawing from its smartphone business, which has been a 'painful finger,' drawing attention to scenarios for business restructuring. Given the smartphone market has become saturated due to the COVID-19 pandemic and the competition among Korean, Chinese, and American companies, it is more likely that LG will partially sell off non-core departments rather than a complete sale.

According to related industries and securities firms on the 21st, it is highly anticipated that LG Electronics will sell only the production division of its smartphone (MC) business unit, excluding key research and development (R&D) personnel. LG currently operates local production plants overseas in countries such as China, Brazil, and Vietnam.

Kwon Bong-seok, President of LG Electronics, acknowledged the possibility of withdrawal in an official email sent to the MC business unit the previous day, stating, "We are reviewing business operation directions with all possibilities open." Until now, LG Electronics has consistently denied rumors of withdrawing from the smartphone business due to poor performance.

If a sale occurs, potential buyers mentioned include Vietnam's Vinsmart, the United States' Facebook and Google, and Germany's Volkswagen. These companies have been repeatedly mentioned amid recurring withdrawal rumors, but Facebook recently gained attention by newly appearing on the list of acquisition candidates.

Previously, LG Electronics increased the proportion of its manufacturing development method (ODM) production division, a type of contract manufacturing, to 60-70% to pursue practical benefits. As in-house production decreased, annual production volumes were 55.7 million units in 2017, 39.7 million units in 2018, 29.2 million units in 2019, and industry estimates suggest it dropped slightly above 20 million units last year.

Therefore, it is widely expected that the premium smartphone development business, a core technology, will not be sold but retained as a future growth engine. The next-generation smartphone, the 'Rollable Phone,' which was partially unveiled and well-received at CES 2021, continues to be developed without interruption. Some R&D personnel responsible for core technology development are likely to be reassigned to the home appliances business unit or the automotive parts (VS·electronic components) business unit, focusing on cloud, 5th generation (5G) communication, Internet of Things (IoT), and artificial intelligence (AI) R&D.