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LG Electronics Inc. will exit its unprofitable smartphone business after years of struggling to compete with industry leaders Apple Inc. and Samsung Electronics Co. as well as fast-growing Chinese rivals.

It wasn’t an unexpected move, following years of speculation about a pullback and after the chief executive of LG Electronics declared in January that all options were under consideration regarding the mobile division’s fate.

The Seoul-based firm, following a unanimous board vote Monday, said it would halt mobile phone production and sales by July 31. LG had once been the world’s third-largest phone maker by shipments and remains the biggest U.S. vendor after Apple and Samsung.

But LG’s overall phone business has withered in the past six years or so. It has been in the red for 23 straight quarters, with the accumulated losses exceeding $4.4 billion.

The move allows LG to give priority to future growth drivers, such as electric-vehicle components and robotics, and focus on a home-appliances business that boomed during the pandemic, the company said. The South Korean electronics giant, despite the mobile losses, is expected to forecast record first-quarter operating profits in a disclosure due later this week, according to industry analysts.

LG, which first broke into mobile-phones business in 1995, has found itself caught in the middle of a bifurcating smartphone industry transitioning to next-generation 5G technology.

On the high end, Apple and Samsung can fetch $1,000 or more for their newest gadgets by relying on powerful brands. On the lower end, firms selling handsets for just several hundred dollars have eked out profits by outsourcing the engineering and design work to contract firms, while ditching pricier advertising channels for online-only campaigns.

That left LG in a precarious position, given that its other lines of business in flat-screen televisions, kitchen appliances and other gadgetry compete with the top players for the deepest-pocketed buyers, said Tom Kang, a Seoul-based research director at Counterpoint Research, a market researcher. About 90% of LG’s phones were being designed and engineered externally, he added.

“The big bosses start to think, ‘Why are we in this business?’ if all we are doing is putting our brand on it," Mr. Kang said.

LG Electronics’ shares rose after the smartphone-exit announcement Monday morning, though ended the day down 2.5%.

The mobile business represented about 8% of LG’s total annual revenue last year. In a regulatory filing, LG said the move would hurt its revenue in subsequent months, though would ultimately help it improve its business and financial health.

Dropping the phone business could improve annual profit by up to 800 billion South Korean won (equivalent to about $708 million) in the coming years, said Jeff Kim, deputy head of research at Seoul-based KB Securities.

LG represented just 2.2% of the smartphone market in 2020, and was the ninth-largest vendor, according to market researcher Strategy Analytics. It was strongest in the U.S., its home market of South Korea and Brazil.

The company’s failures didn’t result from a lack of flash. LG has won various industry innovation awards over the years touting its experimental phone designs and features.

Its G8 ThinQ device from 2019 boasted “Hand ID" technology, where a front-facing camera could unlock the phone by reading the lines and contours of a user’s palm. The upper display of LG’s dual-screen Wing handset, released last year, could swivel 90 degrees, forming a T-shape that made multitasking easier. It once released a customizable, modular-design phone that let users swap in external batteries within seconds.

But those flagship devices failed to win a broad audience. Just one of every 10 LG phones were priced at $300 or more, meaning the company’s sales were overwhelmingly catering to buyers not looking for all the bells and whistles, said Woody Oh, a Seoul-based analyst at Strategy Analytics.

With LG on the way out, rivals offering lower-priced phones in the U.S., South Korea and Brazil, including Samsung, Alphabet Inc.’s Google Pixel and Chinese upstarts, could scoop up extra market share, Mr. Oh added.

Chinese smartphone brands—including Huawei Technologies Co., Xiaomi, Vivo Electronics Corp. and Oppo Electronics Corp.—accounted for a record 57% combined market share in 2020, according to Strategy Analytics. Two decades ago, Chinese phone makers hadn’t cracked 1% of global sales.

This story has been published from a wire agency feed without modifications to the text.

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