LG’s Phone Business is Pretty Much Cooked ($850 Million Losses)
Failure to secure growth combined with the surging popularity of brands like OPPO and Xiaomi is killing LG phone sales and bottom line…
The Android market, and phone market in general, is a devilishly competitive place. You have the big boys – Apple, Samsung, and Huawei – and then a bunch of smaller, newer brands scrambling to pick up the crumbs. And it really doesn’t look good for the old guard (HTC, LG, Sony)…
HTC has all but concluded its phone-based activities, Sony’s current market share is non-existent, and LG, one of the Android market’s OG players, now looks to be following HTC and Sony off the cliff into oblivion. Sad, really. LG’s put out some crazy-good phones over the years.
At its most recent earnings call, LG confirmed losses of $850 million for 2019. The reason? Poor demand for its mid-range phones in key markets like the US and UK. Interestingly, it is this specific area of the market that is enjoying the most growth at the moment, as consumers move away from $1000 phones towards more affordable options like the Pixel 3a and OnePlus 7T.
LG’s problem, however, is that it is being out-classed by brands like OPPO, OnePlus, Huawei, and even Samsung with its uber-popular Galaxy A series of phones. It simply cannot compete with these guys in key markets, and that is why its mobile division’s revenue tanked so hard. In 2020, nothing will change, and LG says it will focus on 5G handsets in the mid-to-high-end segment of the market.
Spoiler alert: that model is more or less identical to its current model which lead to $850 million in losses. And what’s Einstein’s definition of insanity again? Oh yeah! Doing the same thing over and over again and expecting different results.
Why LG (And Sony) Android Phones No Longer Compete
The market is now clearly defined around a few brands – Apple, Samsung, and Huawei. These three companies account for 66.6% of total sales volume, according to StatCounter. The remaining chunk of the market – the only competitive element left – is controlled by Chinese brands like Xiaomi and OPPO with Sony and LG not even getting a mention in the report.
So what happened? Why aren’t LG and Sony competitive anymore? I think it’s fairly simple: they have the wrong business models. I mean, when was the last time you wondered about Sony or LG’s incoming flagship phones? Most people (upwards of 80% most likely) are only interested in iPhones, Samsung, and Huawei for flagship options.
No one is going out with the intention of buying an LG or Sony phone; the brand appeal just isn’t there. And those that are looking for value – i.e. flagship specs and features for less money – are flocking to Chinese brands like OPPO, OnePlus, and Xiaomi in their droves. It’s really this simple; this is where LG and Sony’s phone business has gone. They have been out-maneuvered by smaller, more agile companies that better understand consumer wants and desires.
“If we had taken both Huawei and Xiaomi out of the global smartphone vendors list, smartphone sales to end-users would have declined by 5.2 percent,” said Anshul Gupta, research director at Gartner. “Led by low-price smartphones, enhanced camera features, and high-quality resolution displays, top Chinese mobile phone manufacturers boosted their sales across emerging markets in the third quarter of 2018.”
And for LG and Sony, there are no excuses. This trend has been happening since 2018. It’s not new. But because these companies are creaking monoliths plagued by inter-division bureaucracy, they simply cannot adapt fast enough to evolve with what the market wants. It’s sad, really. But this is just a fact of life for companies that refuse to evolve their corporate structures.
And 5G Won’t Do Squat For LG Sales
Banding 5G around like its the second coming of Christ (for ailing phone makers) is nothing more than a ploy by company execs to temper their investors. Yes, 5G is coming. But it is also coming to iPhone in 2020. And most of these pesky Chinese brands that are taking LG and Sony’s cake and eating it are already doing 5G inside their handsets anyway. So how exactly is 5G going to make a difference to LG and Sony’s bottom line?
Spoiler: it won’t. The next 12 months will play out just like the last 12 months for LG’s phone business. It will struggle against Apple, Samsung, and Huawei at the top of the market and it will continue to lose ground to brands like OPPO and Xiaomi in the mid-to-low segments because people just aren’t interested in Android’s old guard anymore. I mean, just look at the difference between OPPO’s and LG’s website – the latter looks like it was designed by a first-year coder straight out of high school.
Phones aren’t just phones anymore. The power of branding plays a huge role; this is why newer brands like OnePlus, OPPO, and Xiaomi spend so much time and money developing their brand and making it more appealing. And with these Chinese phone companies, the messaging is clear: buy from us and you’ll get $1000 phone features for less than $500. They don’t cut corners, either. Just profit margins. And this, combined with a true understanding of the market and what people actually want, is why LG’s phone business is dead and OPPO and Xiaomi’s is only just getting started.