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LG Electronics faces more pain after record loss in Q3

LG Electronics faces more pain after record loss in Q3
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First Published: Thu, Oct 28 2010. 11 27 AM IST
Updated: Thu, Oct 28 2010. 11 27 AM IST
Seoul: LG Electronics Inc faces a bleak outlook after it reported a record quarterly operating loss, battered by its weak mobile phone business.
Like No. 1 handset vendor Nokia, LG has fallen behind in the lucrative smartphones segment to Apple and No. 2 rival Samsung Electronics.
Intensifying price competition among flat screen TV makers such as Sony Corp and Panasonic Corp in the run-up to Christmas has also dealt a double whammy to LG, the world’s No. 2 TV brand.
“I think its mobile division may not turn around easily. The mobile business... is expected to enter a recovery phase from the second quarter of next year,” said David Min, an analyst at KTB Securities.
The South Korean firm is expected to show another loss in the current quarter with the handset unit likely to report a third straight quarterly loss.
The results are the first since Koo Bon-joon, a member of LG’s founding family, took over as chief executive of the group’s flagship firm this month, with a mission to turn around its loss-making handset operations and restore sales growth.
Koo has replaced the heads of the struggling phone and TV divisions and made it mandatory to start internal meetings and briefings with chanting: “Let’s be sure to become No.1.”
LG shares ended up 1 percent in a steady wider market as the losses were not as severe as some had expected, with few analysts predicting a loss of 250 billion won.
“Its shares have underperformed due to weak earnings performance, and much of it is probably factored in,” said Shim Hong-seop, equity division head at Kyobo AXA Investment Managers.
“Shares are near their bottom, but they will not likely bounce significantly either given their current weak shape.”
The stock has fallen 17% so far this year versus a 14% gain in the market.
LG swung to a record 185 billion won ($163.7 million) billion won operating loss in July-September from a profit of 851 billion won a year ago, meeting a consensus forecast of 185 billion won loss.
No quick fix
Losses from the handset business snowballed to a record 304 billion won and margins plunged to a negative 10%, hit by a weak smartphone lineup and growing development and marketing costs to prop up faltering sales of low-priced models.
LG is hoping its Optimus One model, running on Google’s popular Android platform, and Optimus 7 based on Microsoft’s Windows system, both unveiled in October, will help it successfully shift to the lucrative smartphone market.
The low-end smartphone, which has received some good reviews in Korea, has been sold 200,000 units since its launch three weeks ago. LG wants to sell at least 10 million units of the model but it faces pressure as rivals lower prices.
“I think the greatest problem with LG’s smartphone strategy was that it misjudged the market and responded late. But because it is investing considerably in research and development in that area, LG will probably catch up in the smartphone business,” said Nam Dae-jong, an analyst at SK Securities.
LG’s TV business profit margin halved to 2.3% from a year ago as it offered steeper discounts to hold market share and fight competition.
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First Published: Thu, Oct 28 2010. 11 27 AM IST
More Topics: LG Electronics | Cellphone | Market | Nokia | Samsung |