Ten years ago, the world seemed to be LG’s oyster. At the Mobile World Congress in 2009, heads at LG and Microsoft made a deal to collaborate strategically, with the former using the latter’s OS in a proposed range of smartphones.
At that time, LG was the world’s third-largest phone manufacturer, having posted more than eight per cent share in the global handset market in 2008, according to Bloomberg Businessweek – a figure that it would increase to 10.4 per cent in 2009.
With the all-conquering Samsung Galaxy yet to arrive, LG brands such as Chocolate, Viewty, Lollipop, Cookie and Shine were nigh-on household names, with sparkling celebrity-endorsed advertisements.
In 2008, the company was riding high and had released the second generation of its LG Prada series, a collaboration with the Italian luxury fashion house that had earlier given rise to the market’s first touchscreen phone.
Contrast that with the market by the time of this year’s Mobile World Congress, a decidedly different environment in which LG had seen its global handset share fall to just 2.7 per cent in 2018, according to Counterpoint Research.
In Barcelona this February, LG sought to make a bang by unveiling its first 5G device, the V50 ThinQ 5G, in partnership with fourth-largest US operator Sprint. While other manufacturers were wowing the crowds with foldables that were real and tangible – albeit many being far from landing in consumers’ hands – the V50 came with an optional dual-screen accessory that enabled multiple apps to run at the same time and also functioned as a dedicated controller for certain games.
The device was, on the face of it, an exciting release with meaty specs (such as a 4,000mAh battery, Qualcomm Snapdragon 855 chipset and Android 9 Pie OS). But there was next to no fanfare beyond the standard reporting of its existence. Indeed, much of the excitement came from the gaming corner of the press, with Sprint’s announcement of a deal with cloud-gaming service Hatch taking up most of the oxygen.
“The V50 is fine, though it’s not spectacular or game-changing and there’s nothing about it that would make you sit up and go ‘I really need this’,” says Ovum senior analyst Daniel Gleeson, who was at the launch event. “The main thing about the Sprint 5G launch was the deal with Hatch – that was the big selling point. If you’re LG, that’s worrying.”
Kantar Worldpanel global director Dominic Sunnebo is just as hesitant, saying: “The V50 is very thick. It has a niche user base and it felt like LG was trying to show that it could keep up on the innovation curve [with the foldables], but it was quite clear that it was a very different proposition.”
Lagging
LG appeared to be lagging technologically with the V50, a symptom of its declining market share from 4.5 per cent worldwide in 2013 to last year’s figure of below three per cent by Counterpoint data.
This has been primarily down to some precipitous regional drops: over the same five-year period, LG’s share in Latin America fell from 13.9 to 6.3 per cent, in the Middle East from 2.6 to 0.3 per cent, and in Europe from 6.1 to 1.4 per cent.
In the UK, where the vendor has had an average market share of just over two per cent in the past two years, Kantar Worldpanel reported that its share in Q1 2019 was down to just 0.2 per cent, coming after it shipped just 292,000 smartphones in the country in 2018. In the key global battleground of China, meanwhile, it’s market share is so low that it seems close to being non-existent.
The only region in which LG has been able to make a stand outside its home market – where it took a 16.3 per cent share in 2018 – is the US. There, its share in the past five years actually rose from 8.7 to 14.2 per cent, albeit falling slightly from 2017, according to Counterpoint.
“I don’t know where LG can aspire to be now,” says a former company executive for the UK and Ireland who asked to remain anonymous. “They’re pincered between old adversaries like Apple and Samsung, and the likes of Huawei and OnePlus.”
Gleeson adds: “They got stuck between a rock and a hard place, and they haven’t been able to break out.”
A lot of stats, then, and a lot to unpack. How do we explain the trends? Analysts think that as soon as LG failed to stand out in offering a leading premium Android smartphone, its ability to do so was hamstrung by working with Microsoft for too long – and once Samsung’s Galaxy S series took hold of the market, it was in trouble.
Strategy
LG was late to devise a smartphone strategy: while it gained market share in 2009 with a slew of hardware-heavy feature phones, the iPhone had begun to take root in people’s minds, and then Samsung came in with its S range.
Although 2009 was a peak year for market share for LG, it was also the beginning of the end. “Me and a number of people told the leadership that they were going to need to recognise they weren’t Apple, and to get together with Google and Android – and it didn’t go down too well,” says the unnamed executive.
Gleeson says the big battle was lost around 2011 to 2012, when the Galaxy S2 and S3 “really just sowed up the premium Android market and bullied out LG, HTC and Sony from so many European operators”.
Sunnebo agrees: “The last major successes LG had were the G2 and G3 [around the same time]. From that point onwards from an innovation perspective, it has either been on a par with competitors or slightly below them.”
As LG has dropped away commercially, so has its market visibility, and Sunnebo argues that it no longer has the branding power to stand out. “We’ve found that the LG brand is a driver for only 16 per cent of people in Europe. Huawei is 30 per cent, and for Apple and Samsung it’s higher yet.”
He adds: “People don’t know what LG stands for; they don’t know what the brand is really about. When you have a weak brand, people don’t demand your products and you have to invest a lot of money in retail to shift them. Our data shows that more than a third of all LG buyers were recommended the brand in a retail environment – close to double some of the other key brands across Europe and the US. But investing a lot of money in retail will affect its margins.”
At least for now, LG has a strong position in the US in terms of selling at the lower end of the market. Over there, says Counterpoint Research director Peter Richardson, high-end and low-end devices tend to sell well, with “almost nothing in the middle”.
Tension
Another factor to consider is that in the US, the economic tension that has prevented fast-rising Chinese brands such as Huawei and Xiaomi from gaining a foothold has conversely been crucial to LG thriving there.
“Had Huawei managed to break into the North American market back in 2018, when it was poised to get a deal with AT&T, that could have been very bad for LG,” says Richardson. “It dodged a bullet there.”
Gleeson adds: “It feels like the overall market conditions are right for these Chinese manufacturers to make an impact in the US with 5G and it’s just the macroeconomic cloud that’s going to prevent that from happening.
“When you have the announcement of the V50 for $900-1,000 and the day after Xiaomi announced the Mi Mix 3 5G at less than $700, no matter how good the relationship with operators, it’s not going to survive a $200-300 price difference.”
While the trade war has been a boon for LG in the US, the drops in market share in most regions look almost terminal, often driven by the arrival of mid-range devices from Chinese manufacturers.
Sunnebo does not, meanwhile, think that a merely recognisable presence solely in the US and Korea will be enough for the mobile division to keep in business: “You have factors like economy of scale that start to become very serious issues when you’re thinking about cost base, so I don’t think it’s realistic for LG to play in one or two markets.
“It’s very serious. LG is going to have to make a decision very shortly about whether it invests in the LG brand in mobile or divests that business. It’s been losing money for a long time.”
Like Samsung, LG is a South Korean conglomerate responsible for producing a huge range of technological appliances. But while the company announced record profitability from its appliances and home entertainment products in 2018, its mobile communications sales fell 41.6 per cent year-on-year in Q4 last year.
The former executive does not, however, see the company wanting to step away from the market. “These conglomerates are massive and serve any number of different industries,” he says. “Would they retreat from mobile phones? It’s such an iconic thing to be involved in and they always see it as something that they desperately want to be a part of – that’s the problem.”
There is an element of pride too, given LG’s storied past in the handset world and its corporate culture, with a desire to keep presenting the mobile brand as innovative and competitive even though the commercial truth paints a different picture.
The vendor has not recently announced any plans to cut back staff to try and gain profitability, unlike the plans unveiled by similarly struggling Sony to reduce employees by as much as half within a year – though in its Q4 2018 earnings report, LG did express an intent to “improve cost efficiency to enhance profit structure”.
“I have a colleague who’s Korean and used to work at LG, and he says that being humble is part of the DNA of the company,” says Richardson. “Whereas LG’s colleagues across the road at Samsung are not ashamed to make a song and dance, it’s almost in their DNA to be quiet and unassuming. In a competitive market, that isn’t an ideal character to have.”
Partnership
The advent of 5G cannot be ignored, and, as a Korean company, LG certainly has strength in this respect. Its exclusive partnership with EE for the UK launch of the V50 later this year also augurs well, given that network’s oft-cited high performance scores from the likes of RootMetrics and Opensignal. It’s also a premium-priced device, making it a statement of intent from LG. However, it’s still going toe-to-toe with devices from Huawei (with the foldable but pricey Mate X), Xiaomi (with the aforementioned Mi Mix 3 5G) and Samsung (whose S10 5G variant will follow on the heels of its already-released 4G counterparts). That’s not to mention likely devices from Honor, Oppo and OnePlus set to be unveiled throughout 2019.
“5G could level the playing field because Korea tends to lead the way in network technologies, but will it sufficiently affect market share?” says the former executive. “I’m dubious, because the other manufacturers will do what’s required as well, and they’re coming at it from a position of greater strength.” Richardson adds that while he thinks the V50 5G is a nice-looking device and LG makes good products, “they just never blow anyone away”.
Future outlook
The overall outlook is fairly bleak, then – and the contracting global market may not give LG the breathing space it needs in the mid-range sector.
But although Sunnebo thinks LG has serious decisions to make about the overall viability of its mobile division and the large drops in market share indicate that the end may well be nigh, it’s hard to see the vendor giving up without a fight. Many of the former big players in the mobile world, such as HTC, Motorola and Nokia, have found new life through partnerships or fresh ownership, and as LG Electronics continues to hit commercial heights through its other channels, it may hold onto its mobile arm for as long as possible.
Indeed, in its Q4 2018 earnings report, the company said it was looking to “secure mid to long-term growth momentum”, which doesn’t suggest an intention to scale back.
uSwitch mobiles expert Ru Bhikha adds that the company’s mobile assets are still a defining part of its brand. “It is undeniable when looking at the numbers that LG might be minded to direct its focus to other key areas that it has vast knowledge and experience of, such as the Internet of Things,” he says. “However, LG has largely been known for its mobile phones more so than its other electronics, so to abandon mobile operations completely would be a defining decision for the company.”
Richardson thinks that even if its devices lose all market visibility, LG can keep its place in the smartphone business in a more indirect way.
“LG has a lot of other elements in its business, like components and display technology, so it can use the smartphone business as a way to experiment and develop new technology which it then sell to others.”
