By Elizabeth Koh
SEOUL -- China's increasingly dominant smartphone makers are forcing a once-formidable rival to rethink its future in handsets.
South Korea's LG Electronics Co., still one of the biggest phone sellers in the U.S., said Wednesday that the company is "leaving all possibilities open" for its beleaguered mobile division amid slumping sales.
In a memo to employees, LG Chief Executive Kwon Bong-seok noted the division "has been in the red for 23 consecutive quarters...It's time to make the best choice by judging our current and future competitiveness calmly."
He didn't outline any options under consideration, or specify a timeline for a decision, but analysts say options for LG -- once one of the world's leading smartphone brands -- could include selling off the unit or downsizing its business to key markets such as North America, Latin America and its home market in South Korea. An LG spokesman confirmed the memo but declined to comment further.
The company has long been asked questions about its long-term commitment to smartphones, though it has dismissed those doubts before.
The chance that LG could exit the mobile business underlines a reality that has become increasingly apparent for a matured smartphone market well into its second decade. Outside of Apple Inc. and Samsung Electronics Co., the industry now revolves around lower-cost Chinese manufacturers.
Chinese companies including Huawei Technologies Co. and Xiaomi Corp. have vacuumed up much of the global growth in recent years, benefiting from local ties to the world's largest smartphone market and undercutting competitors abroad in Europe, Latin America and South Asia.
Chinese brands -- which also include Vivo Electronics Corp. and Oppo Electronics Corp. -- accounted for a record 57% combined market share in 2020, according to Strategy Analytics, a market researcher, after first overtaking the rest of the world with shipments in 2017. Two decades ago, Chinese phone makers didn't crack 1% of global sales.
Life has been hard for smartphone players outside of Apple, Samsung and the Chinese makers. Sony Corp. once had ambitions to be a global leader in smartphones but stopped aspiring to be a major player in 2014 after taking a $1.7 billion write-off. A few years ago, Sony executives said the company had considered exiting smartphones altogether. But its strategy focusing on affluent users has enabled it to turn a modest profit. The smartphone business also meshes well with Sony's larger videogame and movie units.
HTC, once the second largest Android smartphone maker after Samsung, found itself similarly squeezed out of the market, eventually agreeing to a $1.1 billion deal in 2017 with Alphabet Inc.'s Google for most of its hardware business.
LG, based in Seoul, had been an early smartphone success story and still controls about 13% of the U.S. market, where China's handset markets are largely absent, according to Counterpoint Research. But world-wide, LG has seen its market share fall from a high of 5.2% in 2015 to roughly 2% today.
Since 2015, LG has accrued more than $4.5 billion in mobile losses during its 23-quarter losing streak. The company broadly has stayed profitable with robust sales from its home entertainment and consumer appliances units. Mr. Kwon's memo followed local news reports speculating about the future of LG's handset business.
The smartphone market, once competitive and fluid, is dominated by heavyweights like Samsung and Apple on the high-end, where fewer consumers leap brand-to-brand and upgrade their devices less frequently. For everyone else, the biggest growth has come from an array of Chinese manufacturers that have leveraged lower prices and mass manufacturing to grow sales in less affluent markets where a $1,000 smartphone is unaffordable.
China's representing too much of the smartphone market has drawbacks, industry analysts warn. The continuing global pandemic, for example, illustrated early on how Chinese companies could be more vulnerable to threats in the region, affecting global output, said Nicole Peng, a Canalys analyst. China's economy and factory output rebounded strongly last year, however, as the virus was contained by authorities.
China is the world's biggest smartphone market and the continued dominance of China-based handset makers in the mainstream market is all but assured, said C.K. Lu, an analyst at market researcher Gartner Inc. "The future could be where all phones are Chinese brands, aside from Apple and Samsung," he said.
LG had begun to lean significantly on original design manufacturers, or ODMs, outsourcing design and development of its handsets, to slash costs in the past few years. Last year, more than 70% of its orders went to contract manufacturers, and the company's phones are assembled in Vietnam, Brazil and China.
LG's smartphone business was given "several last chances" in recent years by frustrated shareholders, said Tom Kang, a Seoul-based Counterpoint Research analyst. The success of LG's other divisions during the pandemic, like its home appliances division, which make up the bulk of companywide revenue, has cast the handset division's continued losses in an even harsher light, he added.
--Peter Landers in Tokyo contributed to this article.
Write to Elizabeth Koh at Elizabeth.Koh@wsj.com
(END) Dow Jones Newswires