Seoul: South Korea’s LG Electronics Inc, the world’s No.2 TV brand and third-ranked mobile maker, posted its weakest profit in three quarters as it spent heavily to push its mobile phones, but earnings should improve this year as consumers buy more electronic appliances.
The main challenge this year will be tougher competition in smartphones, where LG has a relatively weak line-up in a market where Apple Inc and Research In Motion Ltd are strong players.
Also a firmer won currency, up more than 35% from its March 2009 low versus the dollar, dents overseas earnings.
LG and rival Samsung Electronics Co Ltd expect a broad recovery in consumer spending worldwide, especially in developed markets, after the electronics giants weathered a global downturn that was partly offset by demand from China.
Strong flat-screen TV sales helped LG Electronics swing to an October-December net profit after a record loss a year ago, but earnings fell from the previous quarter as aggressive marketing spending weighed on its mobile phone business.
LG said its October-December parent-based net profit was 297.2 billion won ($256 million), well below a forecast for 412.7 billion won from Thomson Reuters I/B/E/S.
It posted a fourth-quarter parent-based operating loss of 139.5 billion won.
Quarterly sales were 7.1 trillion won, below forecasts for 7.3 trillion won.
The company gave no detailed earnings figures on a global basis, which are more widely followed by the market, and said its quarterly results would be announced on Wednesday as planned.
Won’s rise a concern
South Korean financial regulators require listed companies to release full-year results on the day they are approved by the board -- if there’s a significant percentage change.
Full-year net profit was 2.05 trillion won, and operating profit was 1.6 trillion won.
“The fact that it posted a (quarterly) operating loss on a parent-basis is neither a surprise nor a problem as it derives much of its profit from overseas operations, while its cost centres such as R&D and marketing are mostly located in Korea,” said Alex Oh, an analyst at Hanwha Securities.
“I’m pretty optimistic about the months to come, (though) the won’s rise is a major concern to LG and other exporters.”
Oh forecast LG’ global-based operating profit would likely rise to near 600 billion won in the current quarter and could get close to 1 trillion won in the second quarter on strong demand for big items such as TVs and airconditioners.
Han Eun-mee, an analyst at Hi Investment & Securities, also said the market would pay closer attention to the consolidated operating profit due on Wednesday.
“The market knows LCD TV sales were strong and the focus is now on core global-based operating profit numbers ... and how LG fared in the key handset division.”
“Margins probably slipped significantly due to increased marketing costs and intensifying competition,” Han added.
Shares in LG Electronics, which trails Nokia and Samsung in mobile phones, ended down 0.9% on Tuesday and have this week dropped to near 2-month lows, while Samsung has been near its life-high.
“LG’s mobile earnings weakened in the fourth quarter but strong TV sales in North America and Europe have supported the results,” said Kwon Sung-ryul, an analyst at Hana Daetoo Securities. “The TV business will continue to underpin LG this year, and the first half will see earnings recover also on strong seasonality for air conditioners and appliances.”
“LG hasn’t had a hit phone model recently, and worries over its weakness in smartphones remain. Things can turn up in handsets around the second quarter when it beefs up smartphone offerings,” Kwon said.
Mobile rival Sony Ericsson last week reported a seventh straight quarterly loss and warned a recovery in the cellphone market could be slower than expected.