LG asks suppliers to lower part costs

A YouTube live stream from Italy is held as part of the LG Velvet launch seen in this file photo. Yonhap

By Kim Yoo-chul

LG Electronics is attempting to cut the cost of manufacturing its new mobile _ Velvet _ by taking aim at necessary parts and its partner companies that supplied them.

Overall, the corporate outlook isn't too bad for LG Electronics given its solid global positioning in its core products, diverse product portfolio and relatively stable financial structure. Fitch Ratings recently said it believes LG's competitive strength in home appliances and televisions will support its overall operating performance. Amid the spread of COVID-19, a plus factor in terms of demand for home gadgets, LG is anticipated to report a quite impressive performance throughout the year.

But unsurprisingly, any meaningful recovery in its handset business is unlikely, as its continuous restructuring and cost-reduction efforts aren't enough to offset the company's already-weak market position in the structurally slowing smartphone market. That means LG needs to undertake more cost-cutting.

In line with the corporate efforts to relocate its production lines and increase the portion of outsourcing, LG recently unveiled its Velvet smartphone in an attempt for it to be taken seriously as a design leader based on its success in the early 2000s when it had a substantial global share with feature-heavy mobile phones.

Now, because LG wants to be seen as a leader with attractive mid-range devices in a world of okay-looking competitive flagship devices, the firm is looking to procure components at lower prices.

Such efforts seemed to pay off in its negotiation with local suppliers. However, a sticking point is Qualcomm, which holds the key in determining the overall manufacturing cost of the LG Velvet. The San Diego-headquartered firm is reported to have refused LG's request for a discount on Snapdragon 765 chip systems, according to sources familiar with the issue.

"LG Electronics holds intensive negotiations with local and overseas suppliers on a quarterly basis. The session this time was aimed at procuring parts and components at a discount from its suppliers. Most suppliers agreed to sell at a discount," one source said.

In 2019, LG and Qualcomm signed a global patent license agreement after the Korean firm had earlier claimed they had been unable to settle their differences. Under the terms of the five-year, royalty-bearing agreement, Qualcomm granted LG a patent license to develop, manufacture and sell 3G, 4G and 5G single-mode and multimode complete devices.

The LG settlement is regarded as reminiscent of the surprising settlement between Qualcomm and Apple. Apple is also a very important customer for LG.

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