LG says it has reorganized its mobile phone division, which has reported a loss for 22 consecutive quarters, to outsource low- and mid-range smartphones
SEOUL (Reuters) - LG Electronics said on Monday it had reorganised its mobile phone division to increase outsourcing of its low to mid-end smartphones …
Context & Ripple Effects
LG's mobile division has been shrinking for years: the weak-selling G5 produced a $224 million loss back in early 2017, the Q3 2017 quarter lost ~$331 million despite growing US shipments, and by spring 2019 sales had fallen 30% year over year to their lowest level in at least eight years. The 22 consecutive losing quarters cited now span that entire slide.
The reorganization follows a brutal 2020: Q1 sales dropped 34% to $843.9 million with a $201 million operating loss, which LG blamed partly on supply disruptions from its Chinese partners — the same partners it now leans on more heavily by outsourcing low- and mid-range production to them.
First-order effects
- LG converts fixed in-house manufacturing costs for low- and mid-range handsets into variable contract-manufacturing spend, directly attacking the cost base behind the unbroken loss streak while keeping higher-end development in-house.
- Internal production staff and facilities serving those tiers bear the immediate impact as assembly work moves to external manufacturers.
Second-order effects
- Outsourcing deepens LG's dependence on the Chinese supply chain whose disruptions already hit its 2020 output, trading cost savings for concentration risk with contract manufacturers.
- Rivals competing in the budget and mid-tier segments face a competitor whose handset economics no longer carry owned-factory overhead, pressuring price points in a market where LG's volumes were already collapsing.
Third-order effects
- The move is a classic retreat-to-the-core step for a structurally unprofitable hardware brand — and the corpus shows where it led: months later LG terminated the smartphone business outright, suggesting outsourcing was a waystation to exit rather than a turnaround.
- If the pattern holds across the industry, mid-tier smartphones consolidate around scale manufacturers and brands that outsource entirely, leaving owned-factory handset makers to justify their cost structure through premium volume they may not have.
The trend: Loss-making second-tier phone makers are moving from cost-cutting reorganizations to asset-light outsourcing and ultimately exit, ceding the mid-market to scale players.