LG mobile performance improves, but slowly
Looks to LTE devices for significant improvement in fourth quarter, though critics want faster upgrades in midmarket
Published: 26 October, 2011
READ MORE: Financial | LG Electronics | Display | Handset
While heavy investment losses at LG's flat panel display business were the main drag on its third quarter, handsets also continued to drain profitability. The mobile division is gradually improving its performance as LG adds new high end products, but this is happening too slowly for the markets - the unit's loss was worse than analysts had predicted, at KRW138.8bn ($122.7m), even though that was far better than last year's KRW302.9bn figure.
Sales at the mobile division were down 8.5% to KRW2.8 trillion, a steeper decline than the overall 4% year-on-year fall in sales, recorded by the company as a whole. The group reported sales of KRW12.9 trillion and a total net loss of KRW414bn ($367m) in the quarter, reversing a KRW7.6bn profit a year earlier, and worse than the KRW56.1bn forecast by analysts.
Critics think that LG is delivering new handsets too slowly, in an Android market where some players, notably HTC and Samsung, have rapid-fire upgrade cycles for key smartphone models. Although the Korean vendor has had some success in pushing its portfolio upmarket from its midrange heartland, with launches like the Optimus 3D, it must not lose sight of the midrange market, which is a more natural home. "It's been almost a year since their mass market model Optimus One came out, and its lifecycle is about to close without a follow-up model," Park Seong Min, an analyst at Kyobo Securities, told Bloomberg. "That probably led to a fall in smartphone shipments."
LG said it expected to ship about 23.8m smartphones this year, a huge jump from 6.2m in 2010, though this figure is about 20% lower than its original targets. LG sold 21.1m handsets in total in Q3, down from 24.8m in the second quarter, partly because of the slowdown in the popular Optimus One, and also because of tough competition in the featurephone sector.
The company said difficult conditions would persist for the rest of the year and beyond, but it expected better results in Q4 - it is relying mainly on smartphones and 3D televisions for this uptick, in the holiday season. In particular, LG will focus on LTE devices and will release new models in the US and Japan in the first quarter of 2012. But CFO David Jung told shareholders: "Although the market is entering a high selling season for LCD TVs and handsets in the fourth quarter, the pace of growth in our mainstay products will likely slow down due to the continued global economic slowdown."
A major drag on the Q3 results came from a KRW257.9bn loss from the firm's equity investment in LG Display, which suffered poor demand for flat panels and weak prices amid a glut in this segment.
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