LG Electronics unlikely to post profit in 2020: sources

LG Electronics’ Mobile Communication division appears to be pondering for a solution amid sluggish smartphone sales at its key market, North America. Its ODM strategy in China is also facing setbacks, triggering speculation that the company may be further cutting down the workforce.

The LG affiliate’s sales declined 25% on-year in the first quarter of 2020 in the US, where it is the third-largest smartphone maker after Apple and Samsung. This clip was bigger than the 21% fall in the total US smartphone market the same period. Also in comparison, sales of Apple and Samsung fell 13% and 23%, respectively.

Meanwhile, LGE is unable to manufacture phones via ODM as fast as it wants in China, as its production demand is much smaller than those from Chinese players such as Huwei. “We understand that Chinese ODM firms showed up to 70% operation rates in April, but LG has failed to become prioritized,” said one source close to the matter.

LGE had planned to manufacture about 60% of its annual production goal of around 34 million this year via ODM firms such as Wingtech, Huaqin and Longcheer.

The success of LG’s latest “mass-premium” smartphone, the Velvet, also remains to be seen. LG launched the Velvet on May 15 at a price of around KRW 900,000, and using a budget Qualcomm chip.

The Velvet is also sold at half price if a customer signs on to repurchase from LG after 2 years.

But due to the hefty pricetag, critics say the Velvet may have a hard time finding footing, especially as Apple has released its standard SE model for KRW 550,000.

Some say LG won’t expect to swing to the black until late 2021, and that the electronics firm may also slash its production goal. LGE CEO Kwon Bong-suk who was appointed in 2019, had said the mobile communications department would post a profit this year.

The same division had posted 20 straight quarters of deficit up until the first quarter. Production volume has also been falling, standing at 57.28 million in 2017 to 38.1 million in 2018 and 23.75 million in 2019.

The Elec is South Korea’s No.1 tech news platform.