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LG halves mobile division losses, faces slow recovery

LG halves mobile division losses, faces slow recovery
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First Published: Wed, Jul 27 2011. 12 25 PM IST
Updated: Wed, Jul 27 2011. 12 25 PM IST
Seoul: LG Electronics’ quarterly profits jumped 25% after it more than halved losses from its ailing mobile phone division and its television unit returned to a small profit, sending its shares nearly 4% higher.
LG, the world’s No.2 television maker after Samsung Electronics, may however struggle to improve profits as it grapples with stubbornly weak demand for TVs and rising costs of making refrigerators and washers, analysts said.
LG’s phone division has churned out losses for the past five straight quarters, lacking hit products to take on Apple Inc and Samsung Electronics in the fiercely-competitive smartphone market.
The company also joined Philips, Whirlpool Corp and Electrolux in reporting poor results from appliances sales and warning of a weak second half.
“The result is better than already lowered market expectations and actually its handset margin improved in the second quarter,” said Han Eun-mee, an analyst at HI Investment & Securities.
“But for a broad-based recovery, there are several things for LG to get over with... Its home appliances business is struggling with the price war and sluggish demand... and it needs to offer new compelling handset models.”
LG shares closed up 2.6% after jumping as much as 3.8%. Over the past year, the stock is the third worst performer among major global handset makers after Research in Motion’s 56% plunge and Nokia’ 45% drop.
LG, also the world’s No.3 handset maker, reported April-June operating profit of 158 billion won ($150 million), versus a consensus forecast of 200 billion won by Thomson Reuters I/B/E/S.
This was better than the 133 billion won profit as per StarMine’s SmartEstimate, which places more weight on recent forecasts by top-rated analysts.
The number compared with a profit of 126 billion won a year ago and 131 billion won in the preceding quarter.
LG warned that TV demand from advanced countries will remain weak in the third quarter. Earlier this month, it had cut its handset sales target by 20%.
Profits from LG’s home appliances division tumbled 73% to 51 billion won, as it failed to fully pass on soaring costs of raw materials to consumers.
Price increases pushed by appliance makers are not going down well with shoppers, as consumers cope with rising food prices and fuel prices.
Strong TV sales however helped LG’s TV division return to a 90 billion won profit from a loss of 26 billion won, marking a rare bright spot as many global TV makers such as Samsung, Sony and Philips are struggling with weak consumer demand.
LG’s outperformance was partly helped by new 3D TV launches this year.
Mobile phone division improves
LG’s painstakingly slow recovery in its handset business has disappointed investors, pushing its shares down by more than one fifth over the past three months.
“The recovery is very very slow and LG’s handset business will be able to break even in the current quarter at best,” said Jason Kang, an analyst at NH Investment & Securities. “Still it’s going to the right direction, although we have to wait until early next year to see whether LG will be able to generate meaningful profit for sure.”
Losses from its handset business more than halved to 55 billion won from 120 billion loss a year ago. But it remained in the red for a fifth consecutive quarter.
Like Nokia, LG has been slow to revamp its high-end offering and weakened brand quality has forced it to compete on prices, hitting profitability.
LG sold around 10 million smartphones in the first half, while Samsung is widely expected to have sold 19 million smartphones in the second quarter alone.
Shares of LG, which trails Nokia and Samsung Electronics in handsets and competes with Sony Corp and Panasonic Corp in flat-screen TVs, have fallen 18% over the past one year.
Apple shares have jumped 53%, HTC soared 88% and Samsung gained 4%.
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First Published: Wed, Jul 27 2011. 12 25 PM IST