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Can LG save its smartphone business?


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com/techaltar LG has lost a lot of its influence over the smartphone industry through years of declining sales and profits, even as the rest of the industry achieved record growth To fix these issues, the mobile division now has a new president And I went to Seoul, South Korea, to talk to a bunch of people from to see how they plan to turn these negative trends around I'm Marton from TechAltar, you are watching the 34th episode of The Story Behind series, and here's what I've found OK, before we start with the strategy, I really have to put LG's phones into context a little, because I think we smartphone enthusiasts fundamentally get its scale wrong LG smartphones make up about 80 to 90% of LG's mobile communications business unit

The rest is mostly audio products, wearables, and accessories This is one of five business units in a company called LG Electronics and last quarter it was responsible for about 18% of its revenue Most of LG Electronics' revenue comes from home electronics like fridges, washing machines and TVs, but they also sell things like Vehicle components And then LG Electronics is only one of many companies under the LG Corporation umbrella, although it is the largest one, with about 40-50% of the revenues So overall, smartphones only make up somewhere between 5 to 9% of the total revenue of the giant conglomerate known as LG Corporation

Geographically, LG's two most important markets by far are North America and South Korea North America moves the most units, accounting for well over a third of LG's total shipments, but here LG mainly sells lower end units with low prices and low margins In Korea it's the opposite: LG sells fewer phones, but most of them are flagships, and therefore LG is more profitable here, accounting for over a third of LG's mobile revenue Talking of revenue, it has decreased for the company's mobile division by more than 20% over the last five years, even though the market itself grew quite quickly Things aren't looking great

Profitability seems even worse, where LG has been losing money for over 3 straight years now as well 2016 was their worst year, when the LG G5 performed spectacularly badly, and even before that, LG's quality control problems, together with the increased competition from China really put LG into a tough spot OK, so that's a super quick overview, and I think it's pretty clear that things have to change for LG if it wants to turn things around Which the new president apparently wants to do So I talked to a bunch of people at LG, here are all the plans they would share with me

Starting with products, there are two clear directions One is a returned focus on the basics, which they defined as ABCD Audio, Battery, Cameras and Displays LG will apparently stop focusing on being the first to bring random, risky technologies to market, like modular designs or curved screens, which LG has done quite often in the past, and will instead simply make sure that LG phones perform well in these core areas Other companies like Samsung and OPPO had a similar change in mentality a few years ago, and while we enthusiasts might prefer more experimental companies, it sort of makes sense because smartphones are becoming a commodity and nowadays there is so little room for meaningful differentiation now anyway

The G7, which you can see my thoughts on right here, is a pretty good example of this new strategy It's just an evolution of the G6, not something radically new Also a part of this push for fixing the basics is an increased focus on software updates, which LG says they opened a dedicated new software development center for They claim to push for more consistent and faster updates in the future, which was definitely one of LG's weaknesses so far, although we haven't seen any proof of that just yet ThinQ branded artificial intelligence enhancements are supposed to give LG devices a differentiation going forward, but for now I've found LG's actual AI capabilities fairly unimpressive

Mostly just AI based scene detection and image enhancements in cameras, and sadly nothing LG told me about their future plans really seemed like a breakthrough, but I guess only time will tell how far they can push with AI In terms of marketing, LG told me that the promotional budget of LG Electronics as a whole was mostly focused on on promoting OLED and 4K LG TVs, but since they have gained enough market share in those categories, they will start prioritizing mobile phones this year LG signed up BTS, Korea's most popular boyband to promote phones starting with the G7 LG claims that this is their most expensive advertisement deal to date, and while it won't do much for them in, say, Europe, it could give them a nice boost in Asia and to some extent in the US, which, as you might remember, is where LG actually makes money Over the last few years, LG's marketing was fairly weak and got drowned out by more aggressive brands like Samsung, Apple and Huawei though, so we will have to wait and see how hard they really push this year

LG's most counterintuitive and interesting strategy though might just be to wait Given that since 2017, the global smartphone market has stopped growing for the first time ever, and given that most smartphone makers still aren't profitable, smaller and weaker companies are soon expected to either go bankrupt or get bought by larger, more wealthy ones Consolidation is kind of inevitable Just think of HTC, which is being sliced up by Google, Nextbit, which was bought by Razer, or smaller Chinese companies like Gionee and Meizu, which are slowly losing market share And given that LG is a large, diversified conglomerate, it can simply afford to wait until the competition bleeds out

While outlasting competitors, isn't the sexiest strategy, it might actually work for LG OK, so those are all of their plans How do I feel about them? Well, a little mixed First, I think a focus on the ABCD basics plus better software support is going into the right direction I don't see spectacular battery life improvements or or fantastic software support from the LG G7 yet, but let's give this new mobile president a little bit of time

I also find it a little hard to imagine what LG could meaningfully do better in AI than Google, who owns the OS, or Samsung, who at least has more users and money couldn't do but I guess more AI and better AI on LG phones won't hurt either So, the product strategy, while not groundbreaking, is generally going into the right direction But the rest, I'm not so sure about See, a good place for a brand to be is either on the premium end, like Samsung and Apple, or on the value end, like OnePlus and Xiaomi Both are perfectly valid business models

Obviously to sustain a premium brand you need a sales, marketing and customer support structure that convinces people that your products are worth the premium On the budget end, you can save on, most, of those and you can offer your devices for less LG though, falls into this uncomfortable zone between the two They kind of want to appear premium, so they spend some money on these extras, but don't commit to them fully, so consumers don't want to pay the premium prices Just look at their prices over time

Here's the G6 on Amazon It's priced like a premium product at launch, rivaling the latest Galaxy phones, but then gets discounted dramatically pretty much straight away, and in a few months it becomes a value phone And it's a very similar story for other LG flagships I bought my G6, just 3 months after it was announced, for something like 380 Euros That's pretty much half price and this is a problem, because LG has to spend money like a premium brand, but eventually sells phones with margins like a value brand

This is obviously not a good business model, and LG really has to decide, at least in my opinion, what they want to be If they want a premium brand, they should make a premium product and push it just as hard as Samsung does If they are OK being a value brand, they should skip all the BS and start pricing their phones like value phones right from the start To this end, LG telling us that they are finally taking mobile marketing a little more seriously could be a good sign that they are actually becoming a premium brand, but given their track record, I am a little doubtful The saving grace for LG for at least the next few years might come from the US government being aggressive against ZTE and Huawei

The US is LG's largest market by sales, and especially ZTE was already catching up with them in fourth place, but with the recent tensions, LG might get a temporary pass So, really good timing for them! But anyway, I am somewhat torn on LG's future overall They are still losing money, but the worst sales and profit declines seem to be over, their device strategy is finally starting to mature, but they are focusing on a confusing AI strategy, they finally say they will take marketing seriously, but none of their past efforts suggest that they will succeed, and while LG certainly can afford to lose money on smartphones until smaller competitors bleed out, or get banned, I don't see the fire, the aggressiveness that other brands like Samsung or more recently, Chinese competitors seem to have See, I can't really predict if LG will be able to turn its mobile business around, but I can recommend a really, really, really good audiobook The Malazan Book of the fallen is my absolute favourite audiobook ever, and if you like epic stories like the Lord of the Rings or the Game of Thrones series, then I think you will absolutely love this one

You can get this book or any other one from Audible's unmatched catalogue for free with a 30 day trial membership by going to audiblecom/techaltar That way you also let them know that I sent you and you help my show With the membership, you get one credit for any audiobook in the catalogue, which if you didn't like, you can return in exchange for another one and if you did like, you can keep, even after you cancel your membership So go to audiblecom/techaltar or text TechAltar to 500-500 to get your first audiobook for free and support my channel

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