Phone-Maker Struggles to Beat Smartphone Blues
The fourth quarter of 2018 has been a difficult one for several of the world’s top smartphone brands. Saturation in the market, incremental device innovations, subsidy cuts and record-high pricing levels have dampened smartphone sales in many countries around the globe.
LG in particular, had a tough fourth quarter, as its mobile communications unit reported a 42 percent year-on-year fall in revenue in local currency. Revenue from the division stood at $1.5 billion for the quarter, tumbling from $2.8 billion for the same period in 2017 and dropping 16 percent sequentially. This was its seventh quarterly loss in a row, of $286 million. Further details of LG’s performance will be available in our upcoming Quarterly Market Analysis: Mobile Phones report.
The company blamed its weak shipments of mobile devices on the competitive environment for mass-tier smartphones as well as an overall “sluggish” market. LG has several high-end and well-received smartphones on the market including its G7 ThinQ and V40 ThinQ, but sales are being pressed by long-time rivals Apple and Samsung on one side and Chinese smartphone brands Huawei, Vivo, Oppo and Xiaomi on the other.
Smartphones aren’t LG’s sole business. The company is a major manufacturer of home appliances and home entertainment products such as OLED TVs. And it holds a significant share of the market in countries like the US and India. Despite this, LG believes smartphones are an important element in developing a larger product range that also includes smart home systems and artificial intelligence-based electronics for the automotive sector. Smartphones are also a crucial test bed for cutting-edge consumer technology and underpin its artificial intelligence offerings.
In 2018, LG introduced its smart home system ThinQ, which connects and controls its home appliances. It expects its ThinQ artificial intelligence platform to play a decisive role in the future of the company. However, we’re less sure of this, given the highly competitive environment and rivals such as Amazon and Google becoming crucial control points for connected consumer electronics devices. That said, LG, like most other companies in this arena, has integrated technology from Amazon and Google to cast a wider net over customers. The danger is that LG merely dilutes its own artificial intelligence efforts with this approach.
In its outlook for 2019, LG pinned much of its recovery on sales of 5G devices in several important markets. It pointed specifically to 5G networks being built out by mobile operators in South Korea and the US. LG also alluded to a “new form factor” as a way to grab market share in 2019. It’s highly likely this will be a folding smartphone with a flexible display — a technology that LG has been pioneering for many years. However, LG isn’t alone in innovating in this area: Samsung, Xiaomi and others are also expected to deliver folding smartphones in the coming months, making it as hard as ever for LG to make an impact. There’s no doubt the company has a respected brand and the talents to develop impressive new devices, but unfortunately, that doesn’t always translate to sales.
Another glimmer of hope for LG is in the important US market, where LG has a long history of supplying handsets. It will be able to take advantage of Huawei’s misfortune by selling 5G smartphones to customers who may have had their heads turned by the highly successful Chinese rival currently banned from selling phones there. Nonetheless, dependence on the failure of rivals, particularly when this comes from geopolitical tensions, isn’t a formula for long-term success.
We worry there’s a feel of desperation to LG’s outlook. The roll-out of 5G services will definitely boost smartphone sales, but take-up of new networks can happen at an unpredictable pace. Furthermore, LG will face many of the same rivals in a 5G world, all of which are also determined to use the new technology to lift sales in very challenging market conditions.
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