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LG will outsource budget phones to cut costs, turns attention to premium devices

By Nadeem Sarwar December 7, 2020, 11:24 pm
LG Velvet

LG’s smartphone business has not been in the best state lately, primarily because the company lost its competitive edge and also couldn’t keep up with the competition from Chinese rivals. Now, the company is making yet another change in its strategy to revive the fortunes of its smartphone business which has not turned a profit in the past 22 quarters. Reuters reports that the company is re-organizing its entire mobile phone division, created a new management title, and nixed many existing designations to change how it manufactures and sells its smartphones.

To start, LG will outsource the production of its low-end and mid-range budget phones to third-parties in an effort to cut costs. LG is only going to slap its logo on those devices, while all design, R&D, and manufacturing duties will be handled by its Original Design Manufacturer (ODM) partners. LG has made the aforementioned decision to curb losses from its bleeding smartphone division and to better compete with Chinese brands that are increasing their market share at a rapid pace at the cost of LG’s own presence. 


LG will focus its efforts and resources on premium phones

Instead, the company will now focus its efforts on high-end smartphones and those with experimental form factors falling under the Explorer Project initiative. LG has already launched a few premium devices this year such as the LG Velvet and the unique LG Wing which has a swiveling secondary display. LG has already teased a smartphone with a retractable slide-out display that could eventually be launched as LG Slide.

“It has also abolished some research and production positions and reshuffled others, the spokeswoman said, as part of an effort to focus its in-house R&D and production on premium smartphones, with low and mid-end ones to be produced by ODM,” an LG spokesperson was quoted a saying. However, things might not be easy for LG in the face of white-hot competition from Chinese brands, despite LG’s CEO Kwon Bong-seok promising earlier this year that LG’s smartphone business will become profitable in 2021

An uphill battle against Chinese rivals

“It knows it is competing with Chinese competitors, not Apple or Samsung, and it is trying to add to its lower-end models’ value for the price, by using original design manufacturers that Chinese firms use. But even if LG sources its products, without marketing ability, it cannot win against Chinese firms who are good at it,” Counterpoint analyst Tom Kang was quoted as saying regarding LG’s strategy shift.


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