Sign of Separation from LG Group?
The amount of smartphones LG U+ Corp. purchases from LG Electronics Inc. has been cut by half over the past four years. LG U+ has shown a notable movement away from LG Electronics as a result of its profit maximization strategy and the poor performance of LG Electronics in the smartphone business.
According to communications industry sources on Aug. 29, the total amount of transactions between LG U+ and LG Electronics accounted for less than 5 percent of LG U+ total sales in the first half of the year. The ratio stood at 11.1 percent in 2013.
When the current trend continues, the amount of transactions between the two companies is highly likely to take up less than 5 percent of LG U+ annual sales this year. This is because LG Electronics releases “G series” with a high sales volume in the first half and “V series” with a relatively smaller sales volume in the second half. The ratio of LG U+ transactions with LG Electronics to its total sales was 6.2 percent in the first half of last year but the figure decreased to 5.9 percent for the whole of last year.
Market experts say the ratio could drop further as LG Corp. vice chairman Ha Hyun-Hoi was recently named as the new CEO of LG U+. Former LG U+ vice chairman Kwon Young-soo made LG U+ a core subsidiary of LG Group by raising the company’s operating profits by 10 percent a year after taking office in November 2015. By contrast, the mobile carrier is more likely to see its profits fall under new vice chairman Ha due to a burden from investment in 5G networks, a rate-cutting war among three mobile carriers and the government's contunued pressure to lower mobile rates. Under these circumstances, Ha has no reason to provide excessive subsidies to make smartphones from LG Electronics more attractive to its customers.
In particular, interest in LG U+ annual financial statements in 2018, which will be published early next year, is rising since the size of transactions between LG U+ and LG Electronics can hint at LG Group’s big picture in the future. If LG U+ increases the amount of LG Electronics smartphones purchases, it is a sign that LG Group puts stress on synergy among subsidiaries. When the company decreases the amount of the purchases, however, it is a sign that the group is not backing up any subsidiary.
Market experts predict that LG Group will spin off LG Innotek Co. after LG Group vice chairman Koo Bon-joon, uncle of LG group chairman Koo Kwang-mo, secures a majority stake in it. In this regard, an official from LG Group said, “The role of LG U+ in the group will grow further as the company’s 5G and IoT technologies are one of the group’s next growth engines.”