Falling Far Behind
LG Electronics's smartphone business is hardly getting out of the doldrums. From 2015 to the first half of this year, its losses totaled a whopping 1.5 trillion won (US$1.3 billion). Losses have continued for the ninth quarter. This is a stark contrast to Samsung Electronics's profit of 22 trillion won (US$19 billion) during the same span.
In the premium phone market, LG Electronics’ smartphones are relegated by those of Apple and Samsung Electronics. At the same time, they are losing a race with Chinese smartphones in the mid- to low-priced phone market.
According to industry sources on July 12, sales of LG Electronics' first-half strategic smartphone G6 launched in late March are estimated at less than two million units initially expected.
LG Electronics's MC Division has been recording deficits for the ninth consecutive quarter since the second quarter of 2015 as its flagship G Series has suffered from sluggish sales for three consecutive years. The MC Division is expected to post a deficit of 100 billion won (US$90 million) in the second quarter.
LG Electronics’s situation is even worse when compared to that of Samsung Electronics which ranks first globally as a smartphone company. Samsung Electronics’s IM Division generate operated 14.5 trillion won (US$13 billion) in operating profit in 2014, 10.14 trillion (US$9.1 billion) operating profit in 2015, and 10.8 trillion won (US$9.7 billion) in operating profit in 2016, while LG Electronics's MC Division 268.2 billion won (US$241 million) operating profit in 2014, 1.196 trillion won (US$1.07 billion) in operating deficit in 2015 and 1.259 billion won (US$1.13 million) in deficit in 2016. Until the mid-2000s, the sales and profit gap between the two was not wide. But now the gap is too wide for LG Electronics to narrow a great deal.
It is positive that LG’s mid- and low-end phones such as the K Series and X Series are gaining in popularity worldwide, mainly in Korea and North America. LG Electronics is not in a position to hinge on mid- to low-end phones only in order to secure a presence in the smartphone market. In the mid- to low-priced phone market, Chinese companies such as Huawei, Vivo and Oppo are inflating their market shares, making it more difficult for LG Electronics to continue to secure competitiveness.
“LG Electronics's share in the premium smartphone market is not easy to increase because the global smartphone market is growing fast and the premium smartphone market is lead by two strong front runners," said Park Kang-ho, a researcher at Daishin Securities." In order to ramp up sales volume and profitability, LG needs to make a big hit in the premium smartphone market whatever it takes."