Below Expectations
LG Electronics is suffering from triple distress – chronic slump in sales in the mobile phone business, fluctuating exchange rates and slow season of the household appliance business which boosts performance.
The company had seen the growth in operating profits for four quarters in a row since the third quarter last year but the upward trend stopped. The supply results of components for the LG Signature, OLED TV and GM Volt EV in the fourth quarter will determine the overall performance of this year.
According to industry sources on October 7, LG Electronics is showing poor performance in the third quarter due to its declining mobile phone division. The Mobile Communication (MC) division, which is in charge of the company’s cell phone business, had recorded deficits for the sixth consecutive quarter until the third quarter this year. The operating losses in the division increased by more than 100 billion won (US$89.65 million) from 153.5 billion won (US$137.61 million) in the previous quarter because of the failure of its strategic smartphone "G5 in the first half of the year.
A majority of market watchers believes that the MC division will keep posting operating losses until the fourth quarter. LG Electronics released the V20, the strategic model in the second half, in the fourth quarter. However, the company is having difficulties to increase sales since it is the model targeting certain consumers unlike the G5. In particular, the V20 has high production costs as it is equipped with high-end audio systems, adversely affecting the profitability.
LG Electronics also saw sales of home appliance and TV businesses decrease in the third quarter. Its home appliance and TV businesses posted 841.5 billion won (US$754.37 million) and 691.9 billion won (US$620.26 million) in operating profits, respectively, in the first half of the year, pulling up the company’s results.
However, the third quarter in the summer time is a traditionally slow season of the home appliance industry and the price of panels for liquid-crystal display (LCD) TVs, which accounts for more than 90 percent of total TV sales, has risen over 10 percent from the first half of the year, turning around the situation.
Securities firms think that the operating profits of LG Electronics’ home appliance & air solution (H&A) division in the third quarter stood at 330 billion won (US$295.83 million), down 100 billion won (US$89.65 million) from the previous quarter. Its home entertainment (HE) division, which takes care of TV business, also saw its operating profits drop 100 billion won (US$89.65 million) to some 200 billion won (US$179.29 million) from the previous quarter. LG Electronics' vehicle components (VC) division is still just barely breaking even.
In addition, exchange rates is another unfavorable factor. The average won-dollar exchange rate in the third quarter stood at 1,121 won (US$1), down 3.6 percent from the previous quarter.