LG stays in profit as it shifts away from the low end
Handset sales and volumes fall in Q112 but profit looks sustainable on smartphone and LTE shift
Published: 25 April, 2012
We have seen in recent analyses how the smartphone market is increasingly becoming concentrated in the hands of Apple and Samsung, and the first quarter's financial results have only confirmed that trend. Other challengers like HTC and LG are showing signs of recovery from recent setbacks, but they are aware that for every percentage point of growth or attractive new device, the big two are piling on yet another dose of profit and market share.
Most vendors are relying on leaving the low margin featurephone space behind, so despite a loss of volume, they can at least get a bigger share of the sector's profits. Sony Mobile, Motorola Mobility and HTC have gone through this process, and even Nokia may be considering it, according to some analysts. Before the Finnish giant makes such a momentous decision, to defocus on its current area of strength, it will see another rival, LG, already on that path.
LG's first quarter results showed the first signs of results from a rebalancing towards high end devices. Its volumes were down by 22% compared to the last quarter of 2011, to 13.7m units, and revenue fell because of declining featurephone demand, but it managed another profitable quarter in handsets. Profit in the cellphone unit was KRW35bn ($30m), reversing a year-ago loss of KRW101bn, and indeed a string of losses which finally came to an end in Q411. Sales were down 14% year-on-year to KRW2.5 trillion ($2.2bn).
LG said it stayed in the black thanks to a "better product mix with increased smartphone portion, mainly from LTE phones, and better cost structure from improved efficiency in phones." It aims to build on that during the rest of the year by enlarging its LTE range and adding its first quad-core smartphone, plus its "design-centric" L-Style range of 3G devices.
On a group level, LG also returned to profit after two lossmaking quarters, reporting net profit of KRW243bn ($215m) on sales of KRW12.2 trillion ($10.8bn), down from KRW13.2 trillion.