South Korea electronics company LG Electronics Inc. will terminate its loss-making smartphone business.
The company said Monday its board voted to close down the business to concentrate more on its more profitable TV and home-appliances units.
Over the past six years, the company's smartphone division has reported a combined operating loss of more than 5 trillion won ($4.4 billion). The company's seven-member board of directors agreed to shut down the losing business.
"With the termination of the (mobile communications) business, our sales could decline in the short term, but we expect it will improve our business portfolio and financial structure in the mid and long-term," LG said.
Earlier in the year, the company's chief executive Brian Kwon foreshadowed the closure of the business unit when he said that LG was open to all options for the division in an internal memo.
Analysts said it was only a matter of time before the company would completely exit the smartphone market. LG has been attempting to sell off the business but failed to close several deals. LG previously held preliminary talks with potential buyers such as Russia's sovereign fund and Vietnam's Vingroup.
"There's no reason to see the withdrawal is bad. LG may reduce its [annual] loss by 550 billion won, which will add 4 to 5 trillion won of value to the company," analysts at Hi Investment & Securities said in a statement.
Investor response to the decision remained mostly positive. The company's stock rose by more than 2% in early Monday but ended up lower by midday.
LG Electronics is only a small part of the larger LG conglomerate - one of South Korea's largest "chaebol" or family-run businesses. LG also produces various household appliances such as refrigerators, air conditioners, televisions and washing machines.
Industry experts said that LG has mainly been unable to catch up with its domestic rival Samsung Electronics due to its lack of in-house component production. Unlike LG, Samsung produces several of its smartphone components in-house, including its own memory chips and advanced displays.
In the mid-2000s, LG was the world's third-largest smartphone manufacturer, right behind Nokia and Samsung. Over the past years, LG has lost that position and it has been unable to recover its market share. According to Counterpoint Research, LG only had a 1.91% share of the smartphone market by the third quarter of 2020.
