Business Slump Leads to Investment Cut
LG Electronics will reduce its investment for this year to cope with growing global uncertainties stemming from the U.S.-China trade dispute and other factors.
LG Electronics plans to invest a total of 3.38 trillion won this year, according to LG Electronics' third-quarter business report. The figure represented a drop of about 110 billion won from the 3.49 trillion won estimated in the previous quarter's business report. It dropped by more than 1 trillion won from 4.48 trillion won invested in 2018.
LG Electronics did not revise investment in major business divisions such as Home Appliance and Air Solution (H&A), Home Entertainment (HE), Mobile Communication (MC), Vehicle Component Solutions (VS), and Battery Solutions (BS).
In the third-quarter business report, investment by the VS Division in charge of vehicle components, increased to 898.5 billion won from the previous quarter's estimate of 635 billion won. Yet this is an accounting illusion. This is because LG Electronics decided to allocate its investment in ZKW, a company specializing in automotive headlamps, to the VS Division beginning in the third quarter of this year. Previously, the investment was grouped in the “other” category. LG Electronics acquired ZKW with about 1.4 trillion won to boost revenue generation in the electronics sector in April of last year.
By contrast, investment in the "other" sector fell from 1.42 trillion won in the second quarter to 1.05 trillion won in the third quarter. As 264 billion won of LG Electronics’ investment in ZKW in 2018 was moved to the VS Division from the "other" sector, it can be said that the company pruned its investment by about 110.9 billion won.
“The decrease in investment in the other sector was mostly due to a decrease in investment by LG Innotek, a subsidiary of LG Electronics, and was reflected in consolidated accounting,” an LG Electronics official said. Some observers say that as the other sector includes the LG Production Technology Research Center which is in charge of developing and producing equipment, materials and components for LG Group affiliates, investment in related sectors may sink. LG Electronics is currently in the process of downsizing the center's workforce.
LG Electronics' cut in investment is related to its uncertain business environment and business slump. LG Electronics' market share in automotive telematics fell from 22.1 percent in 2017 to 16.6 percent and its AV and AVN market from 8.0 percent to 6.7 percent, respectively, in the third quarter of this year. The VS Division is unlikely to turn profitable next year. Its share in the mobile handset market shrank from 2.5 percent to 1.5 percent over the same period, while its market share I the monitor and signage market from 17.8 percent to 12.8 percent, respectively. However, its share in the market of TVs including organic light-emitting diodes (OLEDs) TVs grew to 16.1 percent from 14.6 percent in 2017, giving the company a hope for an improvement in earnings in the future.