Why LG stopped making smartphones

LG, the Korean electronics group, was one of the smartphone market’s first movers. Now it has joined a group of has-beens, such as Nokia. Matthew Partridge reports

LG smartphone
The group’s market share peaked in 2009
(Image credit: © JUNG YEON-JE/AFP via Getty Images)

Korean electronics company LG is giving up on making smartphones after it admitted that it can’t cope with increasingly intense competition, says James Titcomb in The Daily Telegraph. The news is a major milestone as LG was an early mover in the mobile market, beginning production in 1995 and later pioneering the use of a touchscreen even before Apple launched the iPhone. While its market share peaked in 2009, even in 2013 it was still the world’s third-biggest mobile-phone manufacturer. LG’s departure adds to a growing “graveyard” of phone makers such as Nokia, BlackBerry and Motorola, which previously dominated the industry before falling away.

A penchant for gimmicks

While the Korean giant’s devices have “dwindled in popularity”, retaining barely a 2% share of the market, the halt to production still triggered an “outpouring of nostalgia on social media”, says Michelle Toh on CNN. Fans suggest that while LG wasn’t always successful, the company deserved some credit for its “willingness to innovate”, with some arguing that it was responsible for features that have since become mainstream, such as “ultrawide cameras”.

Nonsense, says Ron Amadeo on Ars Technica. The simple fact is that its phones “were never good” as the company “ping-ponged” between “building exactly what Samsung was building – but with less marketing and brand recognition”, and “unappealing gimmick phones with no rationale behind them”. The latter included “stinkers” such as the LG G Flex in 2013, where “the entire body was shaped like a banana for no reason at all”. What’s more, LG often alienated customers with “poor build-quality” and “shoddy craftsmanship”.

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More broadly, LG has suffered from the fact that the smartphone industry has become bifurcated, say Kwanwoo Jun and Timothy Martin in The Wall Street Journal. On the one hand, “high-end” devices from Apple and Samsung “can fetch $1,000 or more” thanks to the sheer power of their brands. On the other,“lower-end firms “selling handsets for just several hundred dollars have eked out profits by outsourcing the engineering and design work”. LG’s phones were in the latter category – yet its other products, such as flat-screen televisions and kitchen appliances, “compete with the top players” for cash-rich buyers. It made sense to ditch the struggling phones and focus on the top of the market in other areas.

The move is a victory for investors who called for the company to “wind down” the smartphone business, says Song Jung-a in the Financial Times. They said it constituted a “misallocation of resources”, weighing on LG’s market value despite “robust sales” of premium home appliances and televisions: the mobile-phone business “has posted cumulative losses of nearly $4.5bn over the past five years”. Free of the burden, LG is expected to shift more of its resources to the “fast-growing” electric-vehicle components business.

Dr Matthew Partridge

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

Follow Matthew on Twitter: @DrMatthewPartri