Struggling LG slashes phone sales targets

SEOUL/HELSINKI Thu Jul 7, 2011 11:05am BST

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SEOUL/HELSINKI (Reuters) - LG Electronics Inc slashed its sales targets on Thursday, as it struggles to break into the fiercely-competitive smartphone market.

The South Korean firm, the third-largest phone maker globally by volume, also said it was unable to predict a turnaround time for the phones unit, which has reported four consecutive quarterly losses.

LG has been slower than its bigger local rival Samsung Electronics in refocusing on smartphones and its smaller scale has held it back from profiting from rising demand for cheaper phones.

"Our overall performance is gradually improving ... but it's difficult to give a precise prediction when our business will turn around due to a fast changing external market environment," Park Jong-seok, head of LG's handset division, told reporters.

LG cut its 2011 smartphone sales forecast to 24 million handsets from a previous target of more than 30 million, while slashing the overall handset sales target by a quarter to 114 million units from 150 million.

In the first half LG sold almost 50 million mobile phones, including slightly more than 10 million smartphones, Park said.

In contrast, Samsung is expected to have sold 19 million smartphones in the second quarter alone.

"LG's weakness in smartphones is having a knock-on effect across the portfolio and severely straining margins. Nokia's recent price drops reflect the cut-throat economics all phone makers face," said Ben Wood, research director at CCS Insight.

Nokia, which like LG has been slow to revamp its high-end offering, has cut the prices of its smartphones in Europe by up to 15 percent, two industry sources told Reuters earlier this week.

"The next few quarters are going to be brutal. Nokia and (Blackberry maker) RIM are cutting prices and margins to stem eroding market share while others such as Samsung see a window of opportunity to grab share. Its a storm that will undoubtedly result in some high-profile casualties," Wood said.

STRUGGLING

LG is expected to report a fifth consecutive quarterly loss from handset sales in the April-June period because it has failed to introduce products to challenge Apple and Samsung and due to weakening demand growth for its simpler handsets.

But it has been gradually narrowing its losses and its overall performance is recovering, helped by solid demand for such models as the Optimus 2X and Optimus Black.

Analysts expect when the company reports results later this month to show second-quarter losses from handset sales narrowed to around 70-90 billion won from a 120 billion-won ($112.5 million) loss a year ago.

"In mature markets, the LG brand is still considered a step down from Samsung, which makes their products less appealing," said Carolina Milanesi, a Gartner analyst.

"HTC now means more to many consumers than LG. LG has been struggling to deliver more than just hardware and with the weaker brand, they are left many times to compete on price."

By comparison, Samsung is widely expected to sell at least 19 million smartphones in the second quarter and easily beat its 2011 smartphone target of 60 million units, helped by solid sales of a new version of its Galaxy S.

Samsung estimated on Thursday its second-quarter operating profit would come in at 3.7 trillion won and analysts expect a surprise on the upside from the handset division.

LG said on Thursday its Optimus 3D smartphone will be available through South Korea's top mobile carrier SK Telecom. It aims to sell 1.7 million Optimus 3Ds this year.

Shares in LG closed down 1.8 percent on Thursday.

($1= 1065.950 Korean won)

(Editing by Matt Driskill, Greg Mahlich)

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