Handset declines weighs on LG's recovery
Pins hopes on smartphones as Q1 suffers from low sales and prices
Published: 28 April, 2010
READ MORE: Financial | South Korea | LG Electronics | Handset
LG Electronics saw strong recovery in its first quarter results, but its mobile phone unit, which propped up the firm during the downturn, suffered because of lower sales and handset prices.
Instead, the home entertainment and home appliances units were the best performers and televisions are likely to be the key growth driver, taking over from handsets, during the first half of this year.
The LG Mobile Communications Company reported a 19.4% drop in sales year-on-year, blamed on the low season and a fall in average handset prices. This indicates that, despite some high profile launches and a ramped-up smartphone strategy, LG remains over reliant on the price sensitive end of the market, particularly CDMA phones.
But it also saw a decline in shipments, down 19.7% to 27.1m units. This is still enough to keep it safely in its third position in the market, ahead of Sony Ericsson, which reported shipments of 10.5m units in Q1, also down on last year (by 27%). There are two key firms LG needs to watch. One is Motorola, whose Q1 results are yet to be announced but will indicate how far its Android strategy is driving recovery and a possible future challenge to LG. The other is ZTE, which could beat LG on handset shipments in Q1 - it announced a total of 60m units for last year.
LG's smartphone strategy should start to kick in from this quarter, helping boost its painfully thin margins. Operating profit in the division was under 1%, compared to 6.4% last year, though this was mainly down to increased investment in marketing and development, said LG, as it works to shift the balance of its portfolio upmarket. It expects to improve sales and profitability later this year as it launches more smartphones for Android, Windows Phone 7 and Symbian^3 - it currently has under 2% of the open OS smartphone market, though it does sell some big hitting, high end proprietary handsets. It also plans to expand global distribution still further and focus on universal platforms that can be adapted for almost any market, creating economies of scale and recognizable brand.
"We aim to boost second quarter mobile phone shipments by a double digit percent from the first quarter and improve profitability with high end models such as smartphones," LG said in a statement.
Overall, LG Electronics reported Q1 net profit of KRW675bn ($590m), reversing a loss of KRW200bn ($142m) a year earlier. Equity method gains from affiliates, especially LG Display, helped push up net profit.
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