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UPDATE 2-LG Elec profit doubles on TVs but phone business in red
July 25, 2012 / 4:25 AM / 5 years ago

UPDATE 2-LG Elec profit doubles on TVs but phone business in red

* Q2 operating profit 349 bln won, in line with forecasts

* TV division profit more than doubled to 216 bln won

* Cellphone division swings to a 59 bln won loss

* Shares end down 2.1 pct, underperform wider market (Adds details, comments)

By Miyoung Kim

SEOUL, July 25 (Reuters) - LG Electronics Inc, the world’s No.2 TV maker, said on Wednesday quarterly profit more than doubled on a jump in TV sales but its cellphone business swung to a worrying loss, squeezed by growing competition from Apple and Samsung as well as low-cost producers in China.

Its cellphone division, which accounts for around one-fifth of sales and has drawn comparisons with struggling rivals like Nokia, faces further uphill battles with a widely expected launch of a new iPhone from Apple and robust sales for Samsung’s new Galaxy smartphone.

“LG’s mobile phone business will remain its biggest concern -- under the most optimistic scenario, it will probably only make a very small profit for the current quarter,” said Kevin Lee, an analyst at Korea Investment & Securities.

“What’s key is whether it’ll fare better than rivals such as Motorola and successfully break into the formidable Apple-Samsung duopoly in the high-end market.”

April-June operating profit for the South Korean firm surged to 349 billion won ($305 million) from a 158 billion won profit a year ago, in line with consensus forecasts, and a result that comes despite a 10.6 percent fall in overall revenue due to steep declines in mobile phone sales.

In the previous quarter, profit was 448 billion won.

LG has gained market share from struggling Japanese TV manufacturers in recent quarters and the TV division managed to more than double profit to 216 billion won, helped by robust sales of high-end models that have 3D and Internet connectivity features.

But its main income earner is also set to face some challenging months ahead as the euro zone crisis saps demand in Europe, a region it is heavily exposed to.

With annual growth for LCD TVs slowing a notch to 5 percent and the overall global TV market expected to shrink by 1.4 percent this year, how well LG manages to differentiate its cellphone products is widely seen as key to future growth.

Its mobile unit made a loss of 59 billion won after two profitable quarters, also pressured by competition from China’s ZTE and Huawei that forced it to lift marketing costs for cheaper phones.

Hoping to lure more high-end customers, LG introduced its Q voice recognition application for smartphones -- its answer to Apple’s popular voice-enabled personal assistant software -- with initial reviews favourable.

Shares in LG, valued at over $8.5 billion, ended 2.1 percent lower after the earnings announcement, underperforming a 1.4 percent drop in the wider market.

The stock hit a nine-month low last week. It has tumbled 25 percent so far this year, underperforming a 3.1 percent drop in the broader market.

LG’s appliance division saw profit almost triple to 165 billion won and logged a healthy 5.7 percent margin, as solid sales in emerging markets helped cushion weakening demand in Europe.

LG competes with Samsung and Sony in TVs, and also with Google’s Motorola in phones. ($1 = 1146.1750 Korean won) (Editing by Edwina Gibbs)

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