[LG Phone Withdrawal] "Clinging Only to Feature Phone Glory" 3 Decisive Reasons for Mobile Business Failure

1) Slow Response to Smartphone Transition
2) Identity Lost and Fandom Disappears
3) 단통법 and Chinese Low-Cost Phone Offensive

[Asia Economy Reporter Joeslgina] "For those of us who remember the era of the Chocolate phone as if it were yesterday, this is a painful decision."

LG Electronics' choice on the 5th to take the 'strongest measure' of withdrawing from the smartphone business is interpreted as a strategic decision to boldly cut losses and focus its capabilities on future growth businesses. It is essentially an admission of management failure in the mobile business that has continued for more than 25 years since its predecessor LG Information & Communications in 1995.

Inside and outside the industry, LG Electronics' smartphone withdrawal is seen as a foregone conclusion. The MC Business Division, which was in charge of the mobile business, has posted operating losses for 23 consecutive quarters from the second quarter of 2015 through the fourth quarter of last year. The cumulative operating loss until the end of last year was about 5 trillion won. If it had been an independent company making only smartphones, survival would have been impossible. Moreover, its global market share stagnated at around 2%. In the premium market, it was pushed aside by Samsung Electronics and Apple, and in the mid-to-low-end market, it was outcompeted by Chinese manufacturers leveraging price competitiveness.

Chocolate Phone and Prada Phone

LG phones also had their so-called 'glory days.' Numerous hits such as CYON, the ten-million-seller Chocolate phone, Prada phone, and Shine phone were released, and it even ranked first in the U.S. CDMA market share with feature phones. However, the success of feature phones like the Chocolate phone and Prada phone in 2005 ironically became the reason for the delayed response to the smartphone era that began in earnest in 2009. While the Apple iPhone caused a global sensation and Samsung Electronics hurriedly transitioned from 'Anycall' to 'Galaxy,' LG Electronics still clung to feature phones. It was a painful management misjudgment, blindly trusting only the short-term smartphone market forecast provided by McKinsey, which was consulting at the time.

LG Electronics belatedly introduced the 'Optimus' series in 2010, but the market response was cold. In 2013, it knocked on the market door once again with the more upgraded 'G series,' but it was already too late to break the market share barriers established by Apple and Samsung Electronics.

In particular, the fact that the head of the MC Business Division, which led the smartphone business, was replaced repeatedly during this process is evaluated to have negatively affected the building of LG Electronics' unique 'identity.' Since the MC Business Division began posting losses in the second quarter of 2015, it has had four different heads. The lineup confusion intensified during this period, with the newly released V series being included in the G series. LG Electronics eventually abandoned both the G and V series. This contrasts with Samsung Electronics and Apple, which have continued the 'Galaxy' and 'iPhone' series for more than 10 years.

An industry insider pointed out, "As LG Electronics' unique identity disappeared, its 'fandom' also scattered. Although differentiated products like the LG Wing were released, they were perceived as niche and failed to regain the glory of the Chocolate phone and Prada phone."

Additionally, market conditions such as the introduction of the Device Distribution Act in 2014 also seem to have worked against LG Electronics. As various subsidies were reduced, sales outlets had one less reason to promote LG Electronics' smartphones, which had relatively low brand recognition. LG Electronics' domestic market share has fallen from around 30% during the feature phone era to 13% currently. In the global smartphone market, it was outpaced by the mid-to-low-end offensive of Chinese brands Huawei and Xiaomi, which leveraged price competitiveness.