LG Electronics has started a strategic review of its mobile communications business as the global smartphone market is getting saturated and competition more intense.
The review could result in a sale of the South Korean company’s smartphone unit, an option that Kwon Bong-seok, chief executive officer of LG Electronics, did not explicitly rule out in an internal memo to employees on January 20.
“We are conducting a thorough review of options for the business and are open to all possibilities,” said Kwon.
The smartphone division has had operating losses for 23 consecutive quarters since April 2015, amounting to a cumulative 5 trillion won ($4.5 billion) at the end of 2020.
Industry watchers say it could face the same difficulties as Pantech’s sale attempt in 2014. The bankrupt mobile phone maker attracted interest from potential buyers in the early stages of the sale process, including domestic conglomerates and mobile phone manufacturers from China and India, but no deal was ultimately reached.
Domestic bidders pulled out and potential foreign buyers, including India’s Micromax, only wanted to buy Pantech’s intellectual property, leaving out other tangible assets such as production plants and research and development centers in South Korea.
Intellectual assets the biggest lure
LG Electronics has a large number of patents related to mobile communication technology, including over 1700 5G patents, a factor that will attract attention from foreign companies seeking technology transfer opportunities.
“There have been a number of patent infringement lawsuits against Chinese and Indian companies, which explains why they are particularly interested in securing intellectual property,” an industry insider said. “If LG Electronics decided to sell the division and potential buyers only wanted to buy part of its patent assets, the sale process would make very slow progress.”
LG Electronics would have no interest in selling intellectual assets separately. It spends trillions of won developing communication technologies, which generate up to 400 billion won of patent licensing fees annually. Patents for these technologies are also used in the company’s home appliance and automobile parts businesses.
Industry watchers say that forming a joint venture with a global industry player appears to be a more likely option than selling the division. Sweden’s Ericsson and Japan’s Sony entered into a partnership in 2001 to set up Sony Ericsson.
This would enable LG Electronics to separate the division, which would improve its financial position, and retain ownership of the patents. The partnering company would also expect to benefit from synergies with LG Electronics’ various businesses.
“An option of selling the smartphone division does not seem realistic considering the company’s patents and its commitment to having no job cuts,” one industry insider said. “Looking for a partner to form a joint venture could be a viable alternative.” (Reporting by Ik-hwan Choi)