Seoul: Electronics can improve its corporate value by restructuring its money-losing mobile business, analysts here said on Saturday, as the South Korean tech giant can better focus on its future growth engines for the post-pandemic era.
LG Electronics on Wednesday announced that its mobile communications (MC) unit is open to “every possibility” for its future operations amid rumours that the company may sell the struggling mobile business.
“We think LG’s announcement means they are going to either shut down or sell, or at least scale back on its mobile business,” Cho Chul-hee, an analyst at Korea Investment & Securities, said.
Analysts said LG’s decision to restructure its mobile business is a positive development for shareholders, considering that the move will boost the company’s profitability and eventually its value.
LG’s mobile business has been in the red since the second quarter of 2015. Its accumulated operating loss reached nearly $4.5 billion last year, reports Yonhap news agency.
“We have to see the final decision from LG, but it became clear that the company is moving towards reducing losses from the mobile business,” Park Hyung-wou, an analyst at Shinhan Financial Investment, said.
“The mobile business has been a factor that has been dragging down LG’s corporate value.”
Shares in LG have spiked since the company hinted at a possible restructuring of the mobile business, surging 12.84 per cent on Wednesday and 10.78 per cent on Thursday, before cooling down with a 4.05 per cent decline on Friday to end at 177,500 won.
“If LG decides to pull out from the mobile business, its impact for the company’s value will be larger than the numbers on paper,” Ko Eui-young, an analyst at Hi Investment & Securities, said.
LG has been striving to make a turnaround in its mobile business in recent years, shifting its smartphone production base to Vietnam, while expanding outsourcing deals.
Analysts estimate 60 per cent of LG’s phones are currently produced through original development manufacturing (ODM).
To boost its premium smartphone sales, LG last year launched the Explorer Project, its new mobile category highlighted by a different form factor.
Under the project, the company released the Wing, a dual-screen smartphone with a rotating form factor. For this year, LG was scheduled to launch a smartphone with a rollable OLED display.
LG’s share in the global smartphone market is estimated to be between 1 and 2 per cent.
LG may also further shift its mobile business focus to ODM and budget phones, but industry observers said that such a strategy could be risky as it can damage its premium brand image in the TV and home appliance markets.