LG Electronics Profit Growth Powered by TV Business
April 28 2016 - 8:00AM
Dow Jones News
SEOUL—LG Electronics Inc. reported a surge in first-quarter
profit on record margins at its television business, but the South
Korean company is pinning its hopes on its struggling mobile
business to fuel further growth.
While a supply glut has driven down the price of liquid-crystal
displays used in televisions—and helped boost the company's net
profit for the first three months to 198 billion won ($172 million)
from 38 billion won a year earlier—the electronics maker warned
that the trend was unlikely to continue for the rest of the
year.
Instead, LG executives are banking on a turnaround at the
company's mobile business after three straight quarters of
operating losses, spurred by sales of its new G5 smartphone.
LG introduced the G5 phone, which comes with a modular body that
allows users to easily swap in accessories, to a warm reception in
February, fueling expectations the new smartphone will be a
hit.
LG expects to ship three million units of the G5 in the second
quarter. Executives say the phone is on track to outpace the G3
model, released two years ago, which has been one of the company's
best-sellers. LG has shipped 1.6 million units of the G5, compared
with 900,000 units during the first month of the G3's release.
But the new phone comes at one of the toughest times in the
smartphone market, which is facing waning global demand. Total
smartphone shipments fell 3% to 335 million units in the first
quarter from a year ago, which was the first ever decline in
shipments since the advent of smartphones, research firm Strategy
Analytics said Thursday.
"There's no promise the [strong] profits will stay where they
are given the dent in overall demand and stiff competition," Greg
Roh, an analyst with HMC Investment Securities in Seoul, said in a
recent note to clients.
LG's mobile business has been hammered by competition from
heavyweights like Apple Inc. and Samsung Electronics Co., and
low-cost Chinese brands. The unit logged an operating loss of 202.2
billion won, compared with an operating profit of 56.8 billion won
a year earlier.
The TV business swung to a 335.2 billion won operating profit
from a loss of 6.2 billion won a year earlier, as margins rose to
7.7%. A renewed push to sell more premium products, including TV
models that sport next-generation display technology, also helped,
executives said.
Those gains, however, came in part at the expense of a slump in
earnings for LG Display Co., an affiliate company that makes
screens for LG's TV products. LG Display said earlier this week it
eked out a net profit of 1.2 billion won, as falling screen prices
wiped out most of the 475.8 billion won profit it reported a year
earlier.
LG's total operating profit for the March quarter rose 66% to
505 billion won, the highest in nearly two years.
Write to Min-Jeong Lee at min-jeong.lee@wsj.com
(END) Dow Jones Newswires
April 28, 2016 07:45 ET (11:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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