Handsets boost LG Elec Q2, but outlook cloudy

By Marie-France Han and Rhee So-eui

SEOUL (Reuters) - LG Electronics Inc (066570.KS) increased quarterly earnings by 84 percent with strong results in mobile phones and at its LCD joint venture, but the South Korean firm faces a tougher second half amid a global economic downturn.

LG predicted revenues would dip in the third quarter as cash-strapped consumers spend less on high-end gadgets, and its chief financial officer warned the global slowdown could last up to 18 months.

"We are cautious about the outlook for the second half," said CFO David Jung. "We have seen the impact of the slowdown on our orders since June."

LG shares, valued at more than $16 billion, closed 4.1 percent higher at 113,500 won after jumping almost 7 percent before the earnings announcement. The broader market rose 3.5 percent.

Many analysts said the April-June quarter would represent a peak for the year. LG's quarterly net profit was a record but came in below analysts' forecasts due to losses related to foreign exchange debt and higher taxes.

"There are several risks in the second half of the year to 2009, which are the global downturn of the mobile phone market and the weakening display market due to a supply glut," said Jason Kang, analyst at Daewoo Securities.

LG, the world's fourth-largest mobile maker after Nokia (NOK1V.HE), Samsung Electronics (005930.KS) and Motorola (MOT.N), said it expected mobile phone margins and sales to dip in the third quarter, although margins should remain above 10 percent, after hitting a record 14.4 percent in April-June.

LG sold a record 27.7 million phones in April-June, versus 24.4 million in January-March.