LGE – Old Habits Die Hard

History looks ready to repeat itself at LGE.

• LGE has proudly announced that it has cumulatively sold 10m LTE devices but, if history repeats itself, that will be the end of the good news.
• LGE entered the market for 4G devices early and as a result has managed to achieve a market share with margins that are nicely higher than its global average.
• LTE smartphone shipments are expected to be somewhere around 250m in 2013, and LGE wants and hopes to ride this wave in order to expand share and margins further.
• This all sounds great but I heard this same story 10 years ago.
• In 2003, 3G was just beginning and LGE had been early into the market with working devices.
• Consequently it racked up very nice share while the others were struggling to get working devices into the market.
• This was a good period as competition was low and everybody who wanted a 3G device pretty much had to buy at least some from LGE.
• This time round LGE is not in such a good position but the press release and the situation is eerily familiar.
• When everyone else got their act together on 3G, LGE rapidly lost out as its two core weaknesses re-asserted themselves and dragged share and margins down.
• Those issues are still there despite 10 years of trying.
• LGE’s problem is two fold.
  • First. LGE does not really know anything about software. This means that when the crunch comes it has to compete on price alone.
  • Right now its early entry into LGE is helping but this is not going to last long.
  • When LTE is widely available across all tiers, LGE’s edge will be lost once again and it will be back to fighting for relevance in a rapidly commoditising market.
  • Second. LGE is weak when it comes to execution. Execution in smartphones these days is all about software and here LGE’s pedigree is very weak.
  • Hence I am worried that LGE’s margins, which have only just scraped back into the black, will wither once again as pressure builds and execution flounders.
• Both of these problems have plagued the company for many years and while some improvements have been made on both fronts, it is not enough.
• Hence, I think that LGE’s recovery will be short lived and that it will be back in the red again as Android becomes more and more commoditised.
• If you want a story to like in the LG camp, it should be LG Display.
• LG Display is actually leading the market when it comes to OLED and has been forcing Samsung to play catch-up.
• Furthermore its choice of white oxide OLED make its costs for OLED TV much cheaper for the next 5 years giving it an edge over its Korean rival in the television / display market.
• Look at LGD not LGE.