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LG to Outsource Low-end Models to Save Loss Making Smartphone Business

Outsourcing won't be enough though, analyst says.


LG is rethinking its smartphone business strategy in an attempt to cut costs. The company’s smartphone arm has continuously been operating in the red for 22 consecutive quarters, equal to 5 and a half years.

The company’s Q3 report indicates it lost 148.4 billion won ($125 million) from its smartphone business.

The new strategy is poised to help the company cut costs and compete effectively with Chinese rivals. With the new strategy, LG will outsource both design and manufacture of low to mid-end smartphones only to slap their label afterwards.

LG has created new positions, abolished some and reshuffled others.

LG was near the top of the smartphone industry at the beginning of the last decade. In 2013, LG was ranked third, but today, the firm has struggled to keep up and has been replaced by Chinese rivals.

From July to September this year, LG does not even make it to the top 7 list. Even new entrants like realme, surpass the tech company, according to the latest data from Counterpoint.

Speaking to Reuters, Tom Kang, an analyst at Counterpoint says LG is trying to increase its value proposition in its lower-end models by using original design manufacturers that competing Chinese firms use.

He, however, anticipates that the company’s troubles won’t end with just outsourcing. The more significant part of the pie is marketing which Chinese smartphone companies have perfected.

“…even if LG sources its products, without marketing ability, it cannot win against Chinese firms who are good at it,” Kang said.

LG has a presence in a variety of consumer-faced business, and the most profitable of all is its home appliance and home entertainment business.

In Q3, the company posted a 23% increase in profit year-on-year due to strong sales from its home appliance business. The home appliance business posted 671.5 billion won ($565 million) in profits, a 57% YoY increase.

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Alvin Wanjala

Alvin is a freelance tech journalist. Talk to me via email at alvinwanjala[at]pm[dot]me

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