This Decade’s Burning Platform

Nobody can claim that LG Electronics hasn’t been tenacious. Year after year, as its mobile unit lost market share along with money, the company continued to try and challenge competitors with sleek styling and innovative designs. From modular phones to twistable displays, nothing caught on. But living in the shadows of compatriot handset-maker Samsung, LG is a fresh example of how tough the mobile market is and how fickle the audience can be.

The news from South Korea that LG is evaluating all options for its mobile unit, including leaving the handset business altogether, isn’t particularly surprising – but it is sad. About 10 years ago, LG was the world’s third largest handset-maker, behind Nokia and Samsung, and established itself as an aspirational brand around the globe.

We understand that internal statements made by LG’s CEO, Kwon Bong-seok, to his staff were brutally honest about the uncertainties facing the business, and so was the statement the company shared with the press, which read: “Since the competition in the global market for mobile devices is getting fiercer, it is about time for LG to make a cold judgment and the best choice”.

This news is reminiscent of almost 10 years ago, when Nokia employees were addressed by CEO Stephen Elop in his “burning platform” memo, in which he told the company that some cold, hard decisions had to be made. Nokia had been the dominant player in the global handset market only a few years prior to Mr Elop correctly suggesting that it needed to make a bold leap in order to survive, after Apple and Google made Nokia’s smartphone products suddenly seem archaic.

According to reports, LG’s CEO told employees that “all possible measures” would be considered “including sale, withdrawal and downsizing of the smartphone business”. This message confirms rumours that have been circulating for several years. However, given how dynamic the global handset market has been during the past few decades, it has always been a possibility that a company that was once a top player in the market would pack up and leave.

It’s not easy to pinpoint where LG went wrong but scale is a big part of the story. As we’ve seen numerous times, success requires either deep pockets or substantial scale to sustain a position over time. Once LG’s market share started to erode, it had to make difficult decisions. With competition from Apple and Samsung making a high-tier presence almost impossible, LG lost the ability to price aggressively enough to compete with Chinese rivals in the mid- and low tiers.

That said, there’s no doubting the solid talent and good intentions of the company. Its recent unveiling of a smartphone with an expanding, rollable display was a breath of fresh air for many who have become bored with endless launches of lookalike phones. For a few moments, LG gave us hope. But hope doesn’t keep the lights on. This smartphone, if launched, is expected to have a very high price tag, limiting sales volumes.

LG Electronics is still a vital supplier of components to smartphone-makers, and a leading manufacturer of high-end TVs as well as home appliances. In other words, the LG brand is still very valuable.

Mobile phones are arguably the most prolific type of consumer electronics on the planet. With 1.5 billion units, the mobile phone market is attractive to any consumer electronics brand. You only have to look at Sony’s dogged refusal to exit the category, which has also been a loss-making business for Sony for years, to understand why LG has continued to hang on as well.

LG still has operator customers for its phones, mostly in the US and prominently in the prepaid segment, so opportunities do still exist. But there need to be some big changes. One possibility is for LG to outsource all its smartphone development and manufacturing, merely using the LG logo to provide users with a familiar name. In this case, LG’s presence in the US market could be particularly attractive to a Chinese player seeking US expansion. Alternatively, LG might have to face the grim reality that it has reached the end of the road with mobile phones.