LG fires executives, creates new sub-department to try and salvage its collapsing mobile division

For a company that seemed to impress so many with its Optimus G and G2 handsets a few years ago, LG’s mobile market plummet is as pronounced as it is precarious. Last year saw an effort that some felt to be half-baked as the G4 was purely plastic despite rival Samsung’s switch to something more substantial. Even the leather rear covers that some markets had were often dismissed by critics as a last minute decision that “must” have been made to combat the revived Galaxy S series. This year LG has tried something new and markedly different, and sadly its situation is only getting more serious.

The Korea Times published a story earlier today that details some stern decisions made over at LG’s mobile division. Specifically, the company has created a Program Management Office (PMO) within its handset division to specifically try and deal with the situation at hand, and as the report indicated, “replaced some executives”.

A spokesperson for LG provided some key insight, stating that “Friday’s announcement is because LG Electronics’ latest flagship G5 smartphone failed to generate sales.” The spokesperson added that the company hopes these internal changes will create “new momentum” within its mobile division. It was also specified that, “the overseas business unit at the mobile division will take a bigger role…The purpose of the realignment was intended to keep LG’s handset business running amid challenging market situations.”

With respect to the new PMO itself, The Korea Times specifies:

Mobiles chief Cho Juno will oversee the PMO, which has authority to handle strategies for product development, manufacturing, marketing and sales; while Oh Hyung-hoon, a former research lab head, will be its chief, supported by mobile division Vice President Ha Jeong-wook. Kim Hyung-jeong, a senior vice president at LG, has been named head of the company’s mobile research lab.

Rounding out the report, LG was quoted as saying that, “the smartphone marketplace is expected to be increasingly competitive in 2016 due to anticipated premium models from competitors and further price competition within the mass tier space.”

This news comes amid reports that suggest LG – set to post its Q2 2016 fiscal report – will see the company having yet another consecutive quarter of losses.

Far behind the market leaders

Today’s news story also made reference to a Gartner report that has ranked LG as position #7 among all OEMs in terms of global smartphone sales from Q1 2016. LG had less than 4% of the market whereas Samsung was in at #1, Apple at #2, and HUAWEI – up 59% from last year at 8.3% – was #3.

According to an unnamed source who works for an LG affiliate:

It’s too risky for LG to launch cash-intensive, aggressive promotional campaigns to up its brand awareness and to remain competitive in terms of cost structure given very challenging situations. It’s too early to say that LG will drop its mobile business. This seems too radical; however, no answers are seen for the time being.

LG failed to realize ‘economies of a scale,’ unlike Apple and Samsung Electronics. Cutting fixed costs is a one-time measure. LG’s difficulty in the smartphone business is a structural problem that can’t be addressed without radical measures such as relocating all of its manufacturing lines to Vietnam and other cheap Asian countries.

There are an increasingly large number of challenges facing LG Electronics as it has to compete not only with Samsung – its domestic rival – but also with “hostile” offerings from companies like HUAWEI, OPPO, OnePlus, Xiaomi, and vivo: These Chinese OEMs are starting to embrace the more premium product as well, yet are doing so with prices often still significantly lower than the profit margin prescribed productions made by the “old guard” OEMs. Meanwhile, they are also dominating in key Asian markets where their low prices for mid-range hardware presents an almost unbeatable deal.

While LG does manufacture most of its handsets in Korea, some of the lower end ones are in fact, made in countries with even lower wages paid to their employees. The idea that a mass effort to migrate all production to developing Asian countries is definitely a bold one, yet may indeed be one possible way to salvage this situation.

Wrap Up

With today’s news, LG is clearly trying to get back on the ball yet again. Granted the company does have its fair share of loyal fans, but much like with Taiwan’s HTC, this is simply not enough to win in this increasingly challenging market. Do you think the PMO department will be able to salvage this sinking ship? Leave a comment below!