LG Electronics can improve its corporate value by restructuring its money-losing mobile business, analysts here said Saturday, as the South Korean tech giant can better focus on its future growth engines for the post-pandemic era.
LG Electronics announced that its mobile communications (MC) unit is open to “every possibility” for its future operations amid rumors that the company may sell the struggling mobile business.
Analysts said LG’s decision to restructure its mobile business is a positive development for shareholders, considering that the move will boost the company’s profitability and eventually its value.
LG’s mobile business has been in the high since the second quarter of 2015. Its accumulated operating loss reached nearly 5 trillion won (US$4.5 billion) last year.
Shares in LG have cut since the company hinted at a possible restructuring of the mobile business, rising 12.84 percent and 10.78 percent after a day, before reducing down with a 4.05 percent decline on the next day to end at 177,500 won.
LG has been trying to make a turnaround in its mobile business in recent years, shifting its smartphone production base to Vietnam, while expanding outsourcing deals. Analysts estimate 60 percent of LG’s phones are currently produced through original development manufacturing (ODM).
To boost its premium smartphone sales, LG last year launched the Explorer Project, its new mobile category highlighted by a different form factor. Under the project, the company released the LG Wing, a dual-screen smartphone with a rotating form factor. For this year, LG was scheduled to launch a smartphone with a rollable OLED display.
But analysts said such efforts were not enough for LG to turn the tables as they were dominated by Samsung and Apple in the premium segment, while Chinese brands dominated the budget phone sector.
LG’s share in the global smartphone market is estimated to be between 1 and 2 percent. LG may also further shift its mobile business focus to ODM and budget phones, but industry observers said that such a strategy could be risky as it can damage its premium brand image in the TV and home appliance markets.
Kim Ji-san, an analyst at Kiwoom Securities said, “In regard to its corporate value, the best scenario will be selling off the business”. “Even if it shuts down or sells the business, the company will keep its core mobile technologies and support its future engines, such as the Internet of Things (IoT) solutions for home appliances, robots, and autonomous vehicles.”
LG’s announcement regarding its mobile business came after it decided to establish a joint investment with global auto parts maker Magna International Inc. to explore electric powertrain systems for the fast-growing electric vehicle (EV) market. As analysts said LG’s recent moves show the company’s future business goals.