SEOUL (Reuters) - South Korea’s LG Electronics Inc ousted its chief executive on Friday, replacing him with a founding family member in a bid to turn around its loss-making mobile phone business, the world’s third largest.
Koo Bon-joon, the head of trading firm LG International will take over from Nam Yong, who resigned from the top job to take responsibility for poor management, LG said on Friday.
Nam is the second CEO of a major mobile phone maker in a week to lose his job after the world’s No.1 handset maker, Nokia, last Friday replaced Olli-Pekka Kallasvuo with Stephen Elop, a Canadian Microsoft executive.
Both LG Electronics and Nokia have been under pressure due to a lack of strong smartphone models to rival Apple’s iPhone and Samsung Electronics Galaxy S. LG’s mobile business reported a record loss last quarter and warned of a similar loss this quarter.
Investors welcomed the sudden change and pushed LG Electronics shares up nearly 6 percent. The shares closed up 4.7 percent, their biggest percentage gain in about six months.
“Koo is expected to reshuffle the organization and actively cope with the fast-changing IT industry... LG is expected to narrow the gap with Apple and other leading smartphone markers,” said Lee Yong-jik, a fund manager at AIG Investments in Seoul.
The changes at LG and Nokia underscore the turmoil that global handset vendors are embracing due to their slow reaction to the booming smartphone market, which Apple jump-started with the launch of its iPhone in 2007.
LG has failed to come up with a hit model to compete against Apple’s iPhone or Android phones made by Samsung Electronics, Taiwan’s HTC and Motorola and its models so far have been too weak to cover overhead costs.
Its mobile unit, once accounted for around a third of the group sales, earned one fourth of second quarter revenue and reported a record loss of 120 billion won.
Management changes are usually made at the end of the year but the move, which takes effect from October 1, reflected an urgency to overhaul the struggling mobile unit.
“We made the decision to give an incoming chief executive enough time to prepare for next year,” LG said in a statement.
The 58-year-old Koo is a younger brother of LG Group Chairman Koo Bon-moo. A graduate of South Korea’s No. 1 university, Seoul National University, and the University of Chicago’s business school, Koo has spent most of his career at his family’s business group after a stint at U.S. telecoms firm AT&T.
He also owns LG Twins professional baseball team and headed flat-screen maker LG.Philips LCD, later renamed as LG Display.
Success-driven Koo once greeted his employees with ‘Let’s become No.1,’ when he took over as LG.Philips LCD CEO in 1999, and then changed it to “Let’s keep our No.1 title,” media reports said.
“Koo has a deep understanding in technology and extensive experience in broad industries from chemicals, electronics and resources,” LG said in a statement.
Hynix Semiconductor shares rose 6.6 percent on expectations of a potential stake purchase by LG Electronics under Koo. Koo headed LG’s chip business in 1998 but was forced to sell the cash-strapped business to Hynix, then Hyundai Electronics, under the government-led restructuring.
Further management changes at LG Electronics are expected.
“Koo is expected to replace (mobile chief) Skott Ahn and other top executives,” said KB Investment & Securities analyst Harrison Cho. “Under the ownership management, LG will speed up the decision making process and quickly respond to the change of the market environment.”
LG unveiled the new Optimus One this week and said it was targeting sales of 10 million units for its first smartphone to be launched globally through some 120 carriers.
None of the company’s smartphones have yet hit the 1 million unit sales mark.
LG hopes the new Optimus One, along with a new line-up powered by Microsoft’s Windows Phone in the fourth quarter, will would revive its reputation.
But investors are concerned that the new rollouts may come too late with little differentiation factors, when rivals aggressively introduce new products for the crucial year-end holiday period.
Nokia unveiled an arsenal of smartphones crucial to its fightback against Apple this week and HTC also introduced two new handsets using Google’s Android operating system this week.
Koo will be also charged with improving LG’s TV operation, ranked as the world’s No.2, as the business posted a razor-thin 0.5 percent profit margin due to rising competition from Japanese rivals such as Sony.
Additional reporting by Ju-min Park and Jungyoun Park; Editing by Jonathan Hopfner and Dhara Ranasinghe