LG Electronics Q3 net profit sank 99%; handset unit disappoints

Updated:2010/10/29 09:05

Firm's handset shipments fall to 28.4 million, but outlook for unit positive.

LG Electronics Inc. said Thursday its third-quarter net profit plunged 99.2% from a year earlier, hit by severe losses in its handset business and lackluster demand for consumer electronics from Europe and the U.S.

But the result was well above market expectations, boosting shares. For the three months ended Sept. 30, LG Electronics posted net profit of KRW7.57 billion ($6.7 million) in the third quarter ended Sept. 30, down from a net profit of KRW911.3 billion a year earlier but better than the average KRW157.1 billion net loss forecast by six analysts polled by Dow Jones Newswires.

Chief Financial Officer David Jung, however, warned that the ongoing global economic slowdown is hurting overall consumer demand for electronics devices worldwide.

"The (global) fourth-quarter demand still seems uncertain," said Jung at an investor relations session."The fourth-quarter is a typically high selling season for handsets and televisions while flat panel prices are expected to stabilize. But the fall in TV prices is likely to persist amid the global economic weakness and toughening rivalry in major product segments."

LG Electronics, the world's third-largest handset maker by shipments after Nokia Corp. and Samsung Electronics Co., has lagged global peers such as Apple Inc. and Samsung Electronics Co. in introducing premium smartphone offerings and its handset division reported a disappointing 32% decline in third-quarter sales--its worst-ever quarterly loss in history.

But the electronics maker said it expects its key handset business, which dampened the company's overall earnings, to improve on the back of its new smartphone lineups at least from the first quarter of next year at the earliest.

"We expect the sales prices for handsets to improve from the fourth-quarter of this year, helped by our Optimus One smartphone rollouts," said Jung.

"LG is targeting to sell as much as 3 million Optimus One smartphones globally by the end of this year...and we expect the handset division to see a strong recovery at least from the first quarter," he added.

Earlier Thursday, LG said shipments of its "Optimus One" smartphone using Google Inc.'s Android operating system have so far reached around 200,000 units since it launched the product in Korea early this month.

The handset division's operating loss margin further deteriorated in the third quarter to 10.2%, compared with a 3.5% loss margin in the second quarter as the electronics maker had to severely slash the selling prices of its cellphones in a bid to boost sales. During the quarter, the company sold 28.4 million handsets, sharply down from 30.6 million units in the second. LG also targets its fourth-quarter handset shipment to increase by a "high-single-digit" percentage from the third quarter.

For the third quarter, the company also reported an operating loss of KRW185.18 billion, reversing from a KRW851 billion profit a year earlier, while sales fell 2.1% to KRW13.43 trillion from KRW13.72 trillion.

All consolidated figures are based on International Financial Reporting Standards.

Analysts expect LG to continue reporting operating losses until the first quarter of next year as its troubled handset business will continue to weigh on earnings until then, given its high spending on marketing and research and development, and steeply reduced selling prices of its cellphones.

"In particular, we look for a considerable operating loss of KRW415 billion in the fourth quarter of 2010, due mainly to rapidly increasing costs in handsets, a fall in the global TV demand and an intensifying price competition in home appliances," said Nomura in a recent report.

"We believe LG Electronics is unlikely to recover its business momentum until the second-quarter of 2011, despite its efforts, including a change in management."

In September, former chief executive, Nam Yong, resigned after the company's cellphone business stumbled following the rapid growth in the popularity of smartphones.

Koo Bon-joon, a member of the founding family of the broader LG conglomerate, took over the leadership of the flagship electronics maker on Oct. 1.

Sales from LG's home entertainment division, which makes flat-screen TVs and plasma display panels and accounts for nearly 40% of the company's total revenue, rose 9% to KRW5.359 trillion from KRW4.923 trillion. But operating profit fell to KRW122.9 billion in the third quarter from KRW227 billion a year earlier, due to fierce market competition and severe price cuts of televisions to lower high inventory.

By:Jung-Ah Lee  Source:Dow Jones Newswires
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