LG Electronics has reorganized its mobile phone division to increase outsourcing of its low to mid-end smartphones in order to cut costs and compete with Chinese rivals.
LG’s mobile communications business, which has reported an operating loss for 22 consecutive quarters, has created a new management title for original design manufacture (ODM).
This refers to the outsourcing of design and manufacture of smartphones, with LG putting its label on the product.
It has also abolished some research and production positions and reshuffled others, the spokeswoman said, as part of an effort to focus its in-house R&D and production on premium smartphones, with low and mid-end ones to be produced by ODM.
LG Mobile Communications Company generated KRW 1.52 trillion (USD 1.28 billion) in sales in the third quarter, virtually unchanged from last year, and 16.5 percent higher than in the previous quarter.
Third-quarter operating loss of LG Mobile Communications narrowed from a year ago to KRW 148.4 billion (USD 124.9 million) due in large part to increased efficiency in production, cost savings from increased ODM (original design manufacturing) and stronger demand for mass-tier models.
The company plans to strengthen its mass-tier lineup in North America and Latin America as well as continuing to improve operational efficiency.
Although ranked No. 3 in global smartphone market in the first quarter of 2013 by Strategy Analytics, LG is not even among the top seven during the third quarter of this year after losing ground to Chinese smartphone makers like Huawei, Xiaomi, Oppo and Vivo, research firm Counterpoint says.
“It knows it is competing with Chinese competitors, not Apple or Samsung, and it is trying to add to its lower-end models’ value for the price, by using original design manufacturers that Chinese firms use,” Tom Kang, analyst at Counterpoint, said.
“But even if LG sources its products, without marketing ability, it cannot win against Chinese firms who are good at it,” Kang added.
LG had said in October last year it will expand ODM to its mid-range smartphones line-up from just low-end smartphones.