LG puts executive suites on ‘shuffle’; Parent and telecom unit get new CEOs

Trying to please everyone is a good gambit when launching a handset business with global ambitions. Somewhere along the way, however, one has to shift gears.
Managing sustainable growth and profitability in the handset market can demand investment in original designs, support for a manageable number of handset platforms and a limit on the headlong rush to meet each and every network operators’ customization requirements.
These are likely factors affecting LG Electronics Inc.’s telecom woes, which contributed to changes in executive leadership at the corporate parent last week, according to Chris Ambrosio, lead handset analyst at Strategy Analytics.
The parent corporation cited its mobile handset and flat-panel display businesses as two areas of specific concern in announcing an executive shakeup.
The South Korean home appliance giant and corporate parent of LG Telecom replaced its top corporate officer as well as the head of its telecom unit in an effort to reignite its fortunes. By its own count, the company shuffled at least 35 executives in top management.
Such an extensive shakeup of top management probably reflects broad business concerns, but in the telecom unit specifically, the changes almost certainly reflect a series of deteriorating quarterly results that led to LG’s recent slippage from fourth to fifth place in global rankings.
In the third quarter of this year, LG’s sales were down 7 percent, shipments grew by 6 percent and profits were down 36 percent, according to Strategy Analytics.
Yong Nam, a former corporate vice chairman and CEO of LG Telecom-he ran the telecom business from 1998 until May this year-has been named to run the overall corporation as CEO. Skott Ahn, formerly head of LG’s mobile handset R&D center, has been named CEO of the telecom unit. Ahn replaces Il Jae Jung, who had been appointed to the post in July.
According to LG Electronics MobileComm USA Inc., the U.S.-based handset arm of the global corporation, no changes in executive leadership are taking place in the U.S.
In Ambrosio’s view, LG has fared well in the U.S., where it often leads the CDMA market, though it has lost some ground at Sprint Nextel Corp. The Katana from Sanyo has gained at LG’s expense, according to the analyst. But LG’s avid pursuit of all top-tier carrier partners in the U.S. is illustrative of its woes globally, Ambrosio said. LG pursued Java handsets for Sprint Nextel’s Power Vision, BREW for Verizon Wireless’ Vcast, MEdia handsets for Cingular Wireless L.L.C. and is still trying to get a foot in the door at T-Mobile USA Inc. In Europe, LG was one of few vendors to sign up to create SavaJebased handsets for Vodafone, but the technology never took off.
“That’s a good illustration of their willingness to meet their customers’ customization requests, which went a little too far,” Ambrosio said. “No one has the scale to do that, not even Nokia. You have to have a holistic approach going into a market and not just do what a particular (network) operator asks you to do.”
Product development in 3G is another example where LG has not had a coherent strategy, the analyst said. LG grabbed market share in Europe with a popular series of handsets, then failed to follow up, losing their hard-won gains in 3G market share in Europe. With the 3G handset sector being important to future volume growth, apparently the powers-that-be at LG’s governing board decided that management changes were necessary, Ambrosio said.
LG missed an opportunity about a year-and-a-half ago to shift gears from breathless market entrant chasing opportunity to a more calculated pursuit of platforms and designs that could consolidate its position for rational progress on volume and margins.
“They were so focused on customizing products to meet carriers’ demands that they had hundreds of platforms they had to support,” Ambrosio said. “And the number of platforms you support is inversely proportional to how profitable you are.”
Nokia and Motorola, for instance, have developed a manageable number of platforms that can be rapidly tweaked into various handset models, allowing the vendors to leverage economy of scale for global competition. Yet LG’s woes are not uncommon, the analyst said. Samsung Electronics Co. Ltd. and BenQ-Siemens have similar issues, while Sony Ericsson Mobile Communications has wrestled with these challenges and seems to be meeting them. Ambrosio said LG had done remarkably well in its six years or so of existence, propelling itself to fourth place in the world before the recent slippage. And he’s heard LG articulate a more focused platform strategy and the Chocolate handset was an example of the company’s new approach. But a reactive strategy in the competitive handset business can be fatal, Ambrosio said. He pointed to a number of Japanese vendors that have been forced by missteps to retreat to their home market and eschew global ambitions.
The Chocolate is doing well, according to the analyst, but LG has to continue to produce strong new product designs and that will require broad-based capital investment in design.
“LG has to consolidate its handset platforms for a holistic, global plan for the next stage of growth,”said Ambrosio. “The market is consolidating, growth is slowing. It’s a bad time for management issues.”
But, Ambrosio added, a change in leadership often is demanded by changed circumstances.
“Sometimes it boils down to the simple fact that the people who are good at growing a business are not the people to take it to the next level,” Ambrosio said.