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LG Corporation headquarters building in Seoul

Now that LG Electronics has announced its complete withdrawal from the mobile phone business, where does it go from here? Some hints can be found in the company’s actions in recent years and the investment it has pledged to make in each business division.

In a business report for the past five years that LG Electronics released Tuesday, the sector where it has made the most investment between 2017 and 2021 was its home appliances and air solutions division.

LG invested a total of 4.27 trillion won (US$3.82 billion) in home appliances over those five years (provisionally including the 2021 figures). That represented 24.8% of the company’s total investment (17.19 trillion won, US$15.39 billion) over the same period — much higher than its investment in any other division.

LG’s focused investment in household appliances has paid off with surprising results. In 2020, as people spent more time at home because of COVID-19, the company posted its best ever performance. And 73.6% of LG’s total operating profits (3.2 trillion won, US$2.87 billion) came from the home appliances division (2.35 trillion won, US$2.11 billion). In short, the division is serving as LG’s “cash cow.”

So LG could move some of the money freed up by its withdrawal from the mobile sector into its high-performing home appliances division. LG’s expected investment this year (995.7 billion won, US$892.74 million) — announced in its 2020 business report, composed before LG finalized its decision to close the mobile division — is already 40% higher than last year.

Considering that LG has recently been focusing on developing new products and developing the technology to control home appliances with artificial intelligence (AI), it’s likely to invest even more in the home appliances division than it had initially planned.

Analysts also think it’s likely that LG will boost investment in its vehicle component solutions (VS) division. LG regards that division as a future driver of growth. During the five years since 2017, its cumulative investment in VS amounts to 4 trillion won (US$3.58 billion).

That’s pretty close to the amount invested in home electronics and four times the amount invested in home entertainment, another major business division at LG.

Since the VS division is running at a loss, only accounting for 9% of LG’s revenue, this generous investment underscores how much company management is counting on the division for future growth.

LG’s decision to shut down its mobile division rather than sell it off shows that the company wants to hold on to the division’s basic technology. That technology is crucial for various aspects of its VS division, including autonomous driving and telematics (that is, wireless internet services in vehicles).

In a conference call Monday, LG explained that it needs to retain key technology in its mobile division for future action in areas such as the Internet of Things, big data, connected cars, AI, and robotics.

The structural changes that will accompany LG’s withdrawal from the mobile sector probably won’t become apparent until next year. The company still has to complete asset liquidation and restructuring, important parts of winding down its mobile division.

“We expect the mid- and long-term reevaluation of LG Electronics’ stock price to continue as the company succeeds at reorienting its business structure on vehicle components,” said Kim Dong-won, an analyst with KB Securities, in a report released on March 31.

“The draw for [mid- to long-term] investment is the VS division showing growth and turning a profit,” wrote Ju Min-woo, an analyst with Meritz Securities, in a Monday report.

By Song Chae Kyung-hwa, staff reporter

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