Seoul: LG Electronics Inc fell short of consensus forecasts in quarterly earnings on Wednesday, with profits in its TV division tumbling to around one tenth of year-earlier levels as the world’s No.2 TV maker bumped up promotional spending in the year-end holiday season.
LG is set to face a challenging year with forecasts from research firm DisplaySearch calling for flat global TV sales on economic uncertainty and as many households in developed economies already own a flat-screen TV.
Currency rates also look unfavourable. The won has strengthened, reducing the value of earnings made abroad while weakness in the yen has boosted the price competitiveness of Japanese rivals.
LG’s October-December operating profit came in at 107 billion won (Dh361 million, $98.84 million), up 25 per cent from a year earlier but below a consensus forecast for 151 billion won by 32 analysts surveyed by Thomson Reuters I/B/E/S.
The result was broadly in line with a 116 billion won profit forecast by Thomson Reuters StarMine’s SmartEstimate, which places more emphasis on timely projections from the most accurate analysts.
It was the first time LG reported under new South Korean accounting rules, resulting in changes to year-earlier figures.
LG said the profit margin at its TV business declined for a second straight quarter to 0.3 per cent from 0.8 per cent in the previous quarter and 5.7 per cent in the second quarter. The increase in marketing costs coincided with greater price competitiveness from Japanese rivals who have benefited from weakness in the yen.
Shares in LG have been almost flat over the past three months, underperforming a 3 per cent gain in the wider market . Prior to the results, its shares rose 0.7 per cent, in line with a 0.5 per cent rise for the broader market.
LG reported a 468 billion won net loss after booking provisions related to cathode ray tube TV price fixing charges. In December, the European Commission imposed the biggest antitrust penalty in its history, fining six firms including LG, Philips, Panasonic and others a total of 1.47 billion euros fur running two cartels for nearly a decade.
Also hanging over LG is the prospect that a nascent recovery in its struggling smartphone business may slow due to intensifying competition from aggressive Chinese players such as Huawei and ZTE. Apple Inc is also rumoured to be preparing a cheaper iPhone.
LG has struggled to break into the high-end smartphone market, which Apple and Samsung dominate. In the fourth-quarter it sold 15.4 million handsets, lifting its mobile business profit to 55 billion won, versus a 2.5 billion won loss a year ago.
Keen to steal a march on rivals and burnish its reputation for TV technology, LG this month started taking pre-orders for its next-generation 55-inch TV that uses OLED technology, allowing for thinner displays that consume less power.
The TV, however, commands a $10,000 sticker price and will probably not be boosting profit margins anytime soon. LG is also expanding sales of 84-inch ultra high-definition sets, which boast four times better picture quality than full HD models.
LG has 18 per cent of the global TV market, trailing sector leader Samsung Electronics Co which has around 21 per cent of the market. Japanese makers, led by the likes of Sony Corp, Panasonic Corp and Sharp Corp, control around 30 per cent.