Weak won boosts LG's sales

Seoul: Strong mobile phone sales bolstered LG Electronics third-quarter operating profits, and the company looks set to weather the global economic downturn better than its rivals as a weaker Korean won makes its products more competitive.

Handset phone makers such as No. 4-ranked LG and market leader Nokia are just starting to feel the impact of the global economic crisis, which has already wreaked havoc among makers of flat screens and computer chips.

"The outlook appears to be tough through the first half next year," said Kim Ik-sang, an analyst at HI Investment & Securities. "LG's premium phone strategy worked well up to now, but as the economy weakens and consumers' incomes shrink, high-end phone sales will be hurt."

LG sold 23 million phones in the third quarter, down from a record 27.7 million phones in April-June but up 5 per cent from a year earlier. Besides the impact of the weaker currency, its sales have been helped by its strong mix of products from less expensive handsets to high-margin premium phones.

Operating profit on a global basis climbed to 571 billion won, well up on the 362 billion posted last year and in line with a forecast for 562 billion won.

But currency-related losses all but wiped out third-quarter net profits at the mobile phone and appliance maker. As of end-September, the won lost 24 per cent against the dollar from a year earlier.

Last week, Nokia posted lower third-quarter sales and profits, hit by weaker mobile phone demand in its European markets, but managed to soothe investors' growing fears about the fourth quarter.

LG, which competes with Nokia, Samsung Electronics, Motorola and Sony Ericsson, posted an operating profit margin of 11.5 per cent in mobile phones, down from the 14.4 per cent posted in the previous quarter.

But the company said it expected profit margins to remain in the double digits in the fourth quarter, and added that it still expected to meet its 2008 handset sales target of 100 million units as it unveils several new models.

"LG is set to feel the impact of the world economy in the first quarter of 2009, but it should weather the downturn better than its rivals," said Chung Sung-ho, an analyst at KB Investment & Securities.

LG's July-September net profit fell to 25 billion won ($19.1 million) from 339 billion won a year ago. The figure was off the scale of forecasts for a 180 billion won profit by nine analysts surveyed by Reuters.

The steep drop was mainly due to translation losses on foreign-currency denominated debts, which was exacerbated by the won's steep decline this year.

Shares in LG, valued at around $11 billion, rose 1.78 per cent to 97,100 won on Sunday, compared with the broader market's 2.28 per cent rise. The stock fell 8.9 per cent during the July-September quarter, compared with the KOSPI's 13.5 per cent decline.