- Tram Ho
Analysts say LG Electronics can improve corporate value by restructuring its unprofitable mobile business. The South Korean tech giant will focus better on the growth drivers in the post-pandemic future.
LG Electronics announced in the middle of the week that its Mobile Communications division was opening “all possibilities” for its future operations amid rumors of a company selling its mobile business. hard.
” We think LG’s announcement means they will close or sell, or at least shrink the size of their mobile business, ” said Cho Chul-hee, an analyst at Korea Investment Securities. .
According to experts, LG’s decision to restructure the mobile business is a positive step for shareholders, as it will boost profits and ultimately corporate value.
LG’s mobile business has been in a loss since the second quarter of 2015, accumulated losses amounted to nearly $ 4.5 billion last year.
” We have to see the final decision from LG, but it’s clear the company is working towards reducing losses from the mobile business, ” said Park Hyung-wou, an analyst at Shinhan Financial Investment . factors drag down the value of the company . ”
LG shares have surged since it alluded to the possibility of a restructuring of the mobile business, up 12.84% on Wednesday, up another 10.78% on Thursday, before cooling off at off 4.05% on Friday.
In recent days, Korean brokers have raised LG’s target price. ” If LG decides to pull out of mobile, its impact on the company’s value will be greater than the paper numbers ,” said Ko Eui-young, an analyst at Hi Investment Securities.
” The MC division is LG’s devaluation factor because it reduces the reliability of corporate cash flow estimates at regular one-off costs and leads to inefficient company resource allocation .”
In recent years, LG has made efforts to make a turning point in the mobile business, move its smartphone manufacturing base to Vietnam, and expand outsourcing contracts.
Analysts estimate 60% of LG’s phones are now manufactured through original design manufacturers (ODM).
To boost sales of its high-end smartphones, last year LG launched the Explorer project with a new line of phones with distinctive designs. The company launched the Wing, a dual-screen smartphone with a swivel design. This year, LG planned to launch smartphones with rollable OLED displays.
But analysts say such efforts are not enough for LG to turn the tables when they are overshadowed by Samsung Electronics and Apple in the high-end segment, while Chinese brands dominate the low-cost market. . LG’s share in the global smartphone market is currently estimated at 1% – 2%.
” The smartphone market is no longer an era where every company can thrive. LG has less potential for potential growth than it used to be, ” said Ko Jung-woo, an analyst at NH Investment Securities . . Analysts predict LG’s first move to shrink the mobile business.
” Considering outsourcing contracts and contracts with mobile carriers, it will be difficult for LG to exit the mobile business overnight,” said Je Jong-wook, an analyst at Samsung Securities. “Narrow down will make it easier for this company to sell if they want to .”
LG could also shift its mobile business focus to ODM and budget phones, but industry watchers say such a strategy is risky as it could damage LG’s premium brand image. in the TV and home appliance market.
” The best scenario would be to sell the business. Even if that happens, LG will retain core mobile technologies and support internal engines, ” said Kim Ji-san, an analyst at Kiwoom Securities . future, such as Internet of Things (IoT) solutions for home appliances, robots and autonomous vehicles .
LG’s announcement regarding its mobile business comes after it decided to form a joint venture with global auto parts maker Magna International to develop electric powertrain systems for the vehicle market. electricity (EV). Analysts said LG’s recent moves indicate future business goals.
” LG is expected to accelerate its business focus on home appliances, which it boasts of globally competitive capabilities, as well as solutions, ” said Roh Kyuong-tak, an analyst at Eugene Investment Securities. France and B2B “.
” This signals that the direction and speed of LG’s business strategy has changed compared to before in many different business areas “.
Source : Genk