Tech Update: LG Drops out of Smartphone Race
Welcome to The Macro Mail’s Tech Newsletter. Since our last tech mail, a lot has happened - today’s newsletter discusses LG’s smartphone business, Microsoft’s foray into healthcare, and two young internet companies.
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HARDWARE: LG Drops Out
LG Electronics has announced the closure of its smartphone business. Once a major player in the mobile phone industry, years of tough competition has reduced its global market share to just 2% in 2020.
The South Korean company has racked up six years of losses from its smartphone division, totalling about $4.5bn
In the luxury market, Apple and Samsung have developed advanced integrated ecosystems, and in the affordable market, Chinese firms Oppo, Huawei and Xiaomi have vigorously pushed down costs and margins. This two-sided pressure has eroded LG’s customer base, and the company has found itself unable to respond
Smartphones constitute the smallest of LGs five divisions, constituting just 7.4% of revenue. The company will now focus on H&A (Home Appliance & Air Solution), HE (Home Entertainment), VC (Vehicle Components) and B2B (Business-to-business), and will continue to develop telecom-related technologies including 6G
The move will allow LG “to focus resources in growth areas such as electric vehicle components, connected devices, smart homes, robotics and artificial intelligence," according to a company statement
In these other areas, LG has been performing well, setting a record annual operating profit of $2.85bn in 2020. This strong performance was driven by growth in home appliance and electric vehicle component sales
Recently, market analysts Omedia estimated that LG will sell 3,000 units of its OLED rollable TVs, each priced at $99,999. This premium television uses flexible panel material to “unfurl”, changing size and shape. LG had previously planned to use this technology to produce a rollable smartphones, which was criticised as a gimmick and never made it to market
LG’s exit from the highly competitive smartphone industry will likely benefit Samsung, the South Korean tech conglomerate responsible for 17% of worldwide smartphone sales in the most recent quarter, and one of the few remaining brands that successfully operates both entry-level and luxury smartphones. LG is likely to continue to succeed in its commercial and personal technology business.
SOFTWARE: Microsoft Enters Healthcare
Tech conglomerate Microsoft has confirmed its acquisition of AI healthcare firm Nuance Communications for $19.7bn.
Nuance Communications specialises in speech recognition and artificial intelligence systems designed to automate administrative work in the healthcare system.
The merger cements the existing relationship between the companies. In 2019, a strategic partnership was established to pair Nuance’s healthcare technology with Microsoft’s cloud services
The deal values Nuance at 23% above market price as of Friday close, valuing the firm at $16bn. Shareholders will be paid $56 per share, and Microsoft will also assume Nuance’s net debt. Microsoft shares remained flat on the news
In 2020, Microsoft Cloud for Healthcare was launched, joining Microsoft Cloud for Manufacturing, for Retail, for Financial Services and for Nonprofit, representing the company’s recent efforts to diversify away from the Windows operating system that forms the core of their business
The news follows Microsoft’s announcement that they are in “exclusive talks” to acquire Discord and further expand their social media footprint after the company pulled off a blockbuster acquisition of LinkedIn in 2016, and recently but unsuccessfully offers to buy TikTok and Pinterest. The integration of Nuance’s technologies into Microsoft’s offerings will likely spur the company’s proliferation into the healthcare industry, keeping true to CEO Satya Nadella’s aggressive M&A strategy of acquiring fast-growing companies in secular market segments.
CONTENT CREATORS: Fundraising for a Fundraising Site
San-Francisco based Internet company Patreon has initiated a new round of investment, valuing the company at $4bn.
Founded in 2013, Patreon operates a website that allows content creators to raise money from fans. Supporters offer a monthly donation to their favourite artists and entertainers, processed through the site, and are often reward with exclusive or early-access content
The latest fundraising more than triples the company’s valuation since the last round in September 2020. Patreon plans to use the $155 million raised to develop its mobile and desktop platforms and expand into international markets
Patreon has more than 6 million monthly donors. Interest has escalated as COVID-19 has prevented musicians from selling tickets to live performances, and Youtube has become increasingly competitive. Currently, over 200,000 content creators collect donations through the site
Patreon makes money by taking a 5-12% fee from each donation processed through its platform. As private company, it is not clear whether Patreon’s business is profitable
Patreon is a key player in restructuring how content creators generate their income. Rumours in early 2021 that the company was considering an IPO appear unfounded; Patreon likely believes that by improving its platform to offer more donation products to customers around the world, it can maintain the impressive growth it has enjoyed over the past year.
SOCIAL MEDIA: Twitter and Clubhouse
Recent months have seen a surge of interest in social media app Clubhouse. This week, tech giant Twitter has reportedly withdrawn from talks to acquire the company for up to $4bn.
Clubhouse, which was first launched in April 2020, already has approximately 10 million downloads. Users access invite-only audio events including conversations, interviews and discussions. Some of the most popular hosts include comedian Tiffany Haddish (3.4 million followers), philanthropist Felicia Horowitz (3.2 million), actor Jared Leto (3.1 million), and the app’s founders Paul Davison (4.1 million) and Rohan Seth (4.6 million)
The app is currently free to download and does not have adverts. It is unclear how Clubhouse plans to make profit, although it is possible that in the future they will introduce targeted ads like other social media sites, including Twitter. The company’s lofty valuation most likely reflects its large user base, and niche platform which describes itself as “a new type of social network based on voice”
Twitter never publicly announced the talks with Clubhouse, which were leaked by an inside source only after Twitter had pulled out. The reasons for the initiation of the talks and subsequent withdrawal are not clear
Twitter has already experimented with a competitor platform called Spaces. Launched in 2020, it is still in beta and plans to become available to all users in April 2021. The prospective success of Spaces could dent Clubhouse’s growth, especially as Clubhouse is still only available on handheld Apple devices which use iOS
Recently, Twitter head of revenue product Bruce Falck announced that Twitter is exploring ways to monetize Spaces, but has yet to make a concrete decision
Twitter has been long plagued by the difficulties of converting its large user base into a profit. Despite 192 million users every day, the company lost $1.1bn in 2020. Spaces may provide a much-needed new source of revenue for the company. Having achieved incredible growth and public prominence in the past year, Clubhouse will now face a similar challenge of monetizing their platform.
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