Author(s): Raghu Gopal
On 30 November 2017, LG Electronics announced a change in leadership at its mobile communications division.
Hwang Jeong-hwan, who has a long history of research and development work within LG, has been named as president and CEO of the mobile communications unit. He replaces Juno Cho, who will take on another role within LG's parent company. LG has also appointed Dr Park Il-pyung as the division's new chief technology officer. Dr Park previously held the same role at Harman, a company that Samsung acquired in early 2017.
LG's mobile unit has struggled in recent years, caught between Apple and Samsung at the high end of the smartphone market, and Huawei, Oppo and Vivo at the mid- and entry levels. Despite continuing to move significant volumes of handsets, the phone-maker has been losing flagship sales, which offer greater gross margins. As a result, the business has reported losses for nine of the past 10 quarters and shrinking revenue for two of the past 12 quarters.
In many markets, LG's top-end smartphones, the G series and the V series, have been overshadowed by flashy phones from Samsung, which has outspent LG in building its brand value and its design language, both vitally important aspects in an environment filled with so many lookalike Android devices.
To LG's credit, it has made efforts to distinguish itself from the crowd, particularly in 2016 with the release of the modular G5, a phone that the unit's president said at the time was like a "theme park in your pocket" (see LG's G5 Has Friends with Benefits). The company can be credited with leading the modularity trend. Motorola, Essential and Red Products have since released modular smartphones.
The G5 was an earnest attempt at differentiation and the phone was well received, but not because of its modular design. The modular accessories, dubbed "friends", were, for the most part, of marginal benefit. LG returned to a classic design with the G6, another solid smartphone, but challenged in looks and in name by Samsung's Galaxy S7 and S8. At the same time, despite having a loyal following, LG's V series of flagship large-screen phones has seen sales erode as other smartphone makers have introduced rival devices. LG's competitive advantage needs a refresh.
The new leadership team will be responsible for a unit that has been losing money, but is still a known entity capable of moving volumes. LG shipped almost 14 million smartphones in the third quarter of 2017, making it the ninth largest smartphone maker globally.
However, a growing percentage of LG's smartphone sales are at the lower end of the market including in the US, which accounts for more than half of its sales. In this region, LG is increasingly becoming seen as a prepaid brand, a segment of the market with more volumes thanks to greater churn and subsidies, but which offers lower revenue and margins.
LG's other business units, such as its components and appliances groups, have been supporting the losses in the mobile division for several years. It's not a sustainable model and LG is keen to address this. Its new mobile leadership team will need to innovate in design and features and build out a broader portfolio, just as Samsung has been doing throughout the home with a full range of products.
We believe 2018 could be another tough year for LG's mobile unit and that further changes are possible.