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Worst could be over for LG Elec after record Q4 loss

Worst could be over for LG Elec after record Q4 loss
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First Published: Wed, Jan 26 2011. 01 08 PM IST
Updated: Wed, Jan 26 2011. 01 08 PM IST
Seoul: LG Electronics signalled a bottom for its money-losing mobile handset and TV businesses, after the world’s No.2 TV brand reported a record quarterly loss.
Founding family scion Koo Bon-joon, who took over as the CEO in October, is betting on turning around the South Korean firm’s fortunes with its premium Optimus smartphone models, taking on Apple and Samsung Electronics .
Some analysts have upgraded their ratings on LG over the past two months, impressed by its new line-up of smartphones and expectations of a trough in its earnings cycle.
Shares in LG, which trails Nokia and Samsung in handsets, have jumped by a third from their November lows versus a 10% gain in the KOSPI . The stock was previously a big underperformer.
“Smartphones are set to grow as a proportion of the phone market, so having been left behind was a serious blow,” said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management in Tokyo.
“In televisions, Chinese makers are pushing ahead aggressively, making competition harsher, which will probably have weighed on profits.”
LG is the first major Asian electronics firm to report quarterly results. Japanese consumer electronics makers are mostly forecast to post earnings growth, but this will still be weak because they too are struggling to keep up with rivals Apple and Samsung.
LG shares ended 0.8% lower after falling as much as 4%, as results showed losses from handset sales narrowed.
The company reported October-December operating loss of 246 billion won ($219.8 million), its second consecutive record quarterly loss and worse than a consensus forecast of a 165 billion won loss polled by Thomson Reuters I/B/E/S.
According to Starmine SmartEstimates, which places more weight on recent forecasts by top rated analysts, LG was expected to report a record 336 billion won loss in the quarter.
The loss compares with a 114 billion won profit a year ago and a 185 billion won loss in the preceding quarter. LG proposed a 200 won per share for year-end dividend.
Handsets on Recovery Path
LG’s late entry into the high-end smartphone market, half-a-year after Apple introduced the iPhone 4 and Samsung unveiled Galaxy S, means LG’s phone business may remain in the red in the first half of 2011, analysts said.
“The market sees LG’s profit bottomed out in the fourth quarter and is turning around in the first quarter, as its Optimus smartphones are faring well,” said Park Yong-myung, a fund manager at Hanwha Investment Trust Management, which owns LG shares.
“But in the mid-term, I am sceptical about whether LG will catch up with Samsung as LG’s gap with Samsung appears to be widening in smartphones and next-generation AMOLED displays.”
LG reported a 262 billion won loss from handset sales, with margins at a negative 7.7% from a negative 10.2% in the third quarter.
The company is banking on its recently introduced high-end models of Optimus Black and Optimus 2X, which uses powerful dual core processors to improve gaming and browsing speed.
LG, one of the world’s leading home appliance makers, reported a more than six-fold jump in home appliance profit in the fourth quarter, helped by rising sales in North America and emerging markets, and thanks to cost cuts.
The home appliance unit was the most profitable among LG’s five major businesses, reporting 78 billion won in operating profit in the fourth quarter, from 12.2 billion won a year ago. Its air conditioning unit also swung to an operating profit of 9.7 billion won.
Weaker-than-expected consumer demand for TVs and price competition from the likes of Sony and Panasonic are also hitting LG.
Its TV division posted 122 billion won in operating loss, versus a 99 billion won profit a year ago.
Samsung unveils results on Friday. Nokia’s shares fell 3.5% on Tuesday on market worries that the world’s top cellphone maker by volume may issue a profit warning when it reports earnings on Thursday.
An improved global economic growth forecast of 4.4% for this year by the International Monetary Fund will benefit exporters such as LG, which generates around 90% of its revenue overseas.
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First Published: Wed, Jan 26 2011. 01 08 PM IST