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LG Electronics may terminate partnership with Inspur South Korean firm withdraws capital from two JVs established with Inspur

Translated by Kim So-in 공개 2021-09-02 08:05:47

이 기사는 2021년 09월 02일 08:03 더벨 유료페이지에 표출된 기사입니다.

South Korea’s LG Electronics withdrew its capital from two joint ventures it established with Inspur, the largest server manufacturer in China, raising speculations that the South Korean firm may plan to terminate its partnership amid its exit from the mobile phone business.

LG Electronics said Tuesday that it carried out a compensated share capital reduction on Inspur LG Digital Mobile Communications (LGEYT) and Qingdao LG Inspur Digital Communication (LGEQD) in the second quarter of this year, each worth 16.9 billion won ($15 million) and 6.9 billion won. The two companies are production bases of LG Electronics' mid-priced smartphones.

LG Electronics also received dividends worth 23.3 billion won and 19.4 billion won from each. After the dividends and the compensated capital reduction, the book value of LGEYT decreased from 22.1 billion won to 13.5 billion won and LGEQD from 48.6 billion won to 10.3 billion won.

The latest capital reduction is related to downsizing the firms after LG Electronics’ decision to shut down its mobile communication (MC) business.

LGEYT and LGEQD are 7:3 joint ventures between LG Electronics and Inspur. Inspur Group chose LG as its partner to enhance its partnership with Korea.

The latest move is seen as part of LG Electronics’ efforts to streamline its business there considering it has been closing down its overseas production outposts after it decided to exit from its mobile business.

LGEYT and LGEQD recorded positive financial performance although LG Electronics’ MC business has been in the red.

However, the two firms are mentioned as potential restructuring targets as they are unlikely to improve profitability amid fierce competition with Chinese rivals in the mid- to low-priced mobile phone market and shutdown of the MC division. This is why speculations arose that the latest capital reduction is hinting at the end of the strategic partnership with Inspur.

“The capital reduction was carried out as both units are connected to the mobile phone business amid the closure of the MC division,” said an official at LG Electronics. “We haven’t decided what to do following the capital reduction.”(Reporting by Choong-hee Won)
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