The LG G4. After the performance of LG Electronics during the second quarter was announced (200 million won in business profits), company officials anticipated that profitability would improve as the new G4 smartphone launched worldwide. (Image : Yonhap)
SEOUL, Oct. 30 (Korea Bizwire) – After the performance of LG Electronics during the second quarter was announced (200 million won in business profits), company officials anticipated that profitability would improve as the new G4 smartphone launched worldwide.
However, their dreams were shattered as concerns expressed by analysts became reality. The performance of LG Electronics during the third quarter was underwhelming, as the company showed an operating loss of 77.6 billion won.
Although the loss was disappointing, smartphone sales did not drop precipitously. LG announced that it sold a total of 14.9 million phones during the third quarter, which was similar to the third quarter last year when the G3 was a global success (16.8 million in sales).
The problem wasn’t about how many were sold, but about what was sold. The business profits in the third quarter last year were 168.6 billion won. The reason profits shrank by 200 million won this year even though sales were similar was because the G4 was a huge failure in the global premium market. The number of sales were quite fulfilled as the diffusion model that was released afterwards sold well, but with a low average selling price (ASP), it did little to boost profits.
The G4 seems to have been fairly successful in the North American market, where LG is traditionally strong. However, the company was said to have recorded sales that fell below expectations in other territories.
One of the biggest contributors to the loss was the company’s failure in the Korean market. Although the Korean market only covers 10 percent of the smartphone sales of LG, there is a high demand for premium phones, which cover a large portion of business profits.
The lack of innovation in design was pointed out as the biggest cause for the G4′s failure. Even though LG made design efforts, applying a leather back for the first time in the world, the industry watchers say that LG was not able to make noticeable changes in the overall design, UX (user experience) and UI (user interface).
Some point out that the fact that LG did not follow the ‘full metal body’ trend set by Apple’s iPhone 6 in the premium smartphone market contributed to the G4’s failure. This is said to have been the decision of Cho Jun-Ho, the head of the MC business, as he was determined not to follow other company’s designs. He also mentioned that ‘metal is cliché’.
Another take on LG’s failure is that the current global premium smartphone market is flowing towards Apple’s monopoly. Even the business profits of Samsung Electronics remained the same after selling 84 million smartphones during the third quarter, because sales of their premium phones (Galaxy S6 etc.) came in below expectations.
LG is hoping that its new V10 premium model and new Nexus 5X launched this month will help to improve profitability. Since the V10 is the first premium phone in which the factory price is set around 700,000 won, LG is anticipating that it will have the upper hand when it comes to price competitiveness. The V10 will be launched in the global market later this month. LG also has high hopes for Nexus 5X. As it is sold online, it is very profitable.
By Francine Jung (francine.jung@kobizmedia.co.kr)
