Flashbacks and Forecasts: LG in 2016

In our second installment of Flashbacks and Forecasts, let’s take a look at LG in 2015 and make some predictions for 2016. LG’s empire may not be very big compared to Samsung’s, but the “other” South Korean OEM has been making some very impressive phones for the last several years and manages to cast a much larger shadow than its comparatively diminutive scale would lead you to believe.

LG in 2015

LG got off to a tumultuous start in 2015 thanks to a rather bizarre incident in September of 2014 during the IFA trade show in Berlin. You may remember the rather comical accusations that an LG executive willfully sabotaged four Samsung washing machines in a shopping mall in an attempt to secure a “competitive advantage”. Bizarrely, the case lasted for an entire year, with the exec finally being acquitted in December 2015.

But it wasn’t all crazy hijinks in 2015 for the company formerly known as Lucky Goldstar, with a weak start to the product lineup and worrying earnings and market trends making it look like a tough year lie ahead.

Despite making some great phones in 2015, LG was to suffer from the same market fortunes of every other large smartphone manufacturer besides Apple. Increased competition, a plateauing mobile market and increasingly difficult product differentiation put LG in a tough spot throughout the year.

The LG G Flex 2 was the first product off the ranks and it flopped rather spectacularly, despite being light years better than the original G Flex. Most blamed the problems surrounding the Snapdragon 810 processor and thermal throttling issues as the reason for the G Flex 2’s poor performance, but whatever it was, it set the stage for a rollercoaster of a year.

Legal problems

In March of 2015, LG and Samsung agreed to call off their various ongoing legal disputes and to play nice for a change, but by the end of the year both companies found themselves being sued along with Apple and Qualcomm  by ParkerVision in December 2015 over cellular radio frequency patent infringements. The case has just been picked up officially for investigation by the U. S. International Trade Commission for unfair trade practices.

LG also got entangled legally with its display partner Apple at the end of 2015, when accusations were levelled at Apple for not licensing LG’s LTE patents which are part of the LTE standard. As always, patent disputes throughout the year continued to distract LG and everyone else from the business at hand. Perhaps this is why Samsung is calling for the Supreme Court to re-evaluate the patent law system. Fortunately, nothing terribly bad happened to the company throughout the year.

[related_videos title=”MORE FROM LG:” align=”center” type=”custom” videos=”654322,606876,589204,650937″]

Smartphone performance

Following on from a solid last half of 2014, 2015 sales started off quite well, with LG posting its highest ever Q1 revenue since LG entered the smartphone business back in 2010. The company shipped 15.4 million smartphones in the quarter, only 0.1 million less than the previous quarter (which is typically higher due to the holiday buying season). For reference, LG’s best quarter came in Q3 2014, when it posted a record high 16.8 million devices sold.

Unfortunately, the good start to 2015 wasn’t to last, with Q2 earnings slumping by 60% YoY, making Q2, 2015 LG’s lowest quarterly profit in a year and a half. This was the quarter in which the Snapdragon 810 and G Flex 2’s poor reception were felt most acutely. LG’s weak performance in the quarter and increasing competition from China, witnessed LG slip out of the global top five smartphone vendors, shipping only 14.1 million units.

On the television side, despite maintaining its number two spot globally, LG also saw its worst TV sales in over four years.  The LG G4 arrived in Q2, 2015, but wasn’t able to make much difference to the quarter’s profits. Despite having a remarkably good camera, just as the G Flex 2 did, the G4 failed to make a huge impact, primarily for not offering enough product differentiation, according to analysts. Nevertheless, LG was confident it could turn things around in the next quarter with the LG V10 and Nexus 5X.

Fortunately, it did. But not by much. Shipments in Q3, 2015 went up to 14.9 million but they were still not enough to get LG back in the top five behind Samsung, Apple, HUAWEI, Lenovo and Xiaomi respectively. LG Mobile lost vast amounts of money again, but overall LG came out slightly ahead. In fact, despite the ups and downs, LG has come out with a profit in every quarter of 2015 so far.

A strong finish?

So what can we expect for LG’s Q4, 2015 earnings? Considering the V10 has sold much better than the G Flex series ever did, and interest in the Nexus 5X has been decent, if over-shadowed by the Nexus 6P, smartphone sales for Q4 should be strong. However, LG’s device sales are typically made up of more mid-range devices than flagships and the second generation Watch Urbane is unlikely to make any real impact.

LG Mobile earnings shouldn’t see such massive losses in the final quarter of the year, but it’s still quite likely a loss will be made, just not as bad as previous quarters. Nevertheless, LG’s other divisions like LG Display, LG Home Appliance and LG Chem will likely make up for the shortfall, but only just, and see LG finish off the year with another net profit and operating profit, as modest as they may be.

2016: a lot rests on the LG G5 and continued aesthetic differentiation

So what does this mean for 2016? What does LG’s generally downward-trending market share allow us to predict? The first thing is that LG already knows that product differentiation at this point only needs to be skin-deep in order to succeed, with very little differentiating flagship devices internally these days. The G series’ rear-key setup was evidence of this, as was the V10’s secondary screen.

The rumored modular nature of the LG G5 will absolutely help it stand out in an otherwise very “samey” marketplace. For the uninitiated, the device will reportedly have a removable bottom section that will allow for different modules – cameras, larger batteries etc – to be inserted. It’s an interesting idea that, like the V10 screen, might take some explaining, but will certainly make the G5 a unique device.

We can safely assume the G Flex series has been officially retired and that LG won’t be making a fourth Nexus in 2016. That opens up some space for some other possibilities, perhaps in the wearable sector and perhaps in tablets. The V10 will absolutely see a second iteration and LG will be on the lookout for even more new ways to stick out from the crowd, so expect some more whacky new features as 2016 progresses.

Managing the trouble ahead

Fortunately, LG also has LG Chem and LG Display up its sleeve and both of these divisions will be working overtime on new flexible displays and battery technologies. Breakthroughs in these areas would not only boost LG Electronics’ fortunes but also generate a lot more component sales for the company, something Samsung is relying on in these tough times.

The lawsuit against LG and other companies regarding RF patents could cost the company dearly if found guilty, but the case will likely take a while to conclude. The LG G5, running the Snapdragon 820 no doubt, has a lot of potential to get LG off to a solid start, but only if the modular nature isn’t seen as pointless or received as an Apple-like proprietary gimmick.

As far as competition goes, the G5 will be in direct competition with the Samsung Galaxy S7 and its multiple variants, which are also expected to debut at the Mobile World Congress trade show in Barcelona at the end of February. If the rumors of a return of microSD to the Galaxy S range are true, it could negatively impact LG’s recent advantage, which has seen it become the default fall-back option for Samsung fans slighted by the removal of microSD in the Galaxy range.

[related_videos title=”LG Vs. THE COMPETETION:” align=”center” type=”custom” videos=”667300,634295,588275,651264″]

LG’s mid-range offerings throughout the year will see increasingly tough competition from low-cost Chinese manufacturers like Xiaomi at the same time as LG’s high-end competition expands to include challengers like HUAWEI. Sony and HTCmay be near irrelevant these days and Motorola’s transformation might put it off the radar, but LG has more than enough things to worry about internally.

The recent job cuts in the WebOS team at LG Silicon Valley Labs means we won’t be seeing too much from that department in 2016 but LG’s Vehicle Components division has been identified as one to keep an eye on. A massive new OLED factory should help pay the bills, especially if it starts making panels for the iPhone 7 like Samsung is rumored to be doing, and LG’s home appliances are performing well.

The forecast

The recent high-level exec restructuring at LG is designed to “give each executive more independence and responsibility to facilitate rapid decision-making”. The company is clearly aware it needs to shake things up a little to remain competitive. While the last quarter of 2015 may not be too bad, LG’s smartphone business is unmistakably being carried by LG’s other divisions.

As with Samsung, LG is also facing heightened competition from China in the low-cost sector as well as in the high-end market due to the success of the iPhone 6. Differentiation will be the name of the game for LG in 2016: it already has good batteries, solid performance and an excellent camera. All that remains is a software overhaul and ways to stick out. With any luck this means we’ll see some really exciting new developments from LG this year and a few more high-profile risks taken.

Also check out – Open letter to the manufacturers: what we want in 2016