LG eyes 40% revenue from infotech, telecom

Leading Korean player LG Electronics will begin a major restructuring exercise by September-end to concentrate more on the IT (hardware) and telecom (GSM) space, rather than being confined to just the consumer durables segment.

Mobile phones and the IT segment currently contribute 20 per cent to the company's total business. However, the company's internal findings revealed that the Rs 18,000 crore market for mobile phones and laptops and desktops in India offers more appeal than the Rs 13,000 crore market for consumer durables. It has hired global management consulting firm McKinsey to chart a roadmap for the restructuring. The company is eyeing up to 40 per cent revenue share in the next 2-3 years with this restructuring.

The company, say sources, could hive off its mobile phone and IT divisions into separate units in a bid to accentuate focus on each division. The company is not speculating on the investments it would be making in the two units, but chose to state that "it will depend on the McKinsey report to identify and direct us in terms of investment". Sandeep Tiwari, head-marketing, LG said, "We are planning to go aggressive on mobile phones and in the IT segment, that comprises laptops and desktops."

LG is also undertaking a brand repositioning exercise and wants to be known as a youth-centric brand. The company's ad accounts are split between Lowe and Innocean. The former handles the duties for all products except mobile phones, which are serviced by Innocean. The company currently spends Rs 100 crore on advertising. Besides, the company through its joint venture with Nortel is also targeting small and medium enterprises for its voice over internet protocol (VoIP) products.

"The IT and mobile segment is growing at 25-30 per cent CAGR and that means in the next five years, growth for a firm like LG could be the largest in these segments, instead of focusing only on the consumer durable industry that is expected to grow at just 12-14 per cent," reasoned Tiwari.

While LG in India already has a wide array of CDMA phones, it is vying to enter the GSM phone business in the near future. Its current market share in mobile phones in India is a negligible two per cent, but the company expects it to grow to a double-digit share in a couple of years.

Diptarup Chakraborti, principal analyst, global IT research and advisory firm Gartner, said "Players like Sony, LG and Apple in the recent past have been increasing their presence by making laptops. This is happening primarily due to consumer demand and traditionally these companies have been strong in this segment. So the fact that LG wants to enhance itself in the IT segment means that it will aggressively market its IT products like LCD, flat screen monitors, high-end desktops, etc. Besides if it plans to get into the corporate segment, LG will have to arrive at a completely new channel strategy and invest in getting resellers, systems integrators,etc."

LG's manufacturing unit near Pune currently manufactures GSM handsets besides consumer durables, but Tiwari does not rule out the possibility of the Pune plant to be used to manufacture handsets, specially for the Indian market. "We will market entry- to mid-level GSM mobile phones and also look at mid-tier laptops and desktop PCs for the home segment," revealed Tiwari.

The home PC segment, indicates the company's findings, will be an important area for LG to focus. The entire branding exercise, claims LG, is India-specific.

The company is also planning to make full use of the retail boom in the country. Currently, LG products are being showcased in 106 outlets. "Once McKinsey presents the report, we will decide on the amount to be invested in the retail sector. New shops will be opened and services in the already existing ones will be improved," said Tiwari. These plans will be implemented in 2008.