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LG Electronics Posts 3rd-Quarter Profit on Phone Earnings

October 24, 2012

LG Electronics Posts 3rd-Quarter Profit on Phone Earnings

An LG Electronics Inc. Optimus G smartphone at the company’s showroom in the COEX mall in Seoul. Photographer: SeongJoon Cho/Bloomberg

LG Electronics Inc. (066570), South Korea’s second-largest mobile-phone maker, posted a profit in the third quarter on earnings from handset sales and higher demand for home appliances such as washing machines and refrigerators.

Net income was 157.1 billion won ($142 million) in the three months ended Sept. 30, compared with a loss of 413.9 billion won a year earlier, Seoul-based LG said in a statement today. The average of 22 analyst estimates compiled by Bloomberg was for a profit of 158.6 billion won.

LG Electronics shares rose to the highest level in more than a month in Seoul after the phone business, which slipped to the world’s No. 5 this year, unexpectedly posted a profit in the quarter. The company is counting on its Optimus line of smartphones running Google Inc. (GOOG:US)’s Android operating system to compete with Apple Inc.’s iPhone and Samsung Electronics Co.’s Galaxy devices, while cutting production of cheaper handsets.

“The biggest factor was their handset business returning to profit,” Park Kang Ho, a Seoul-based analyst at Daishin Securities Co., said by phone. “We thought their mobile business would at best break even. The overall product mix has improved and margins got better.”

LG rose 1.4 percent to 74,000 won at the close of trading in Seoul trading at the close of trading, while South Korea’s benchmark Kospi (KOSPI) index lost 0.7 percent.

Mobile Profit

LG’s mobile division had a third-quarter profit of 21.5 billion won, compared with a 138.8 billion won loss a year earlier, the statement said. Analysts surveyed by Bloomberg News forecast a median loss of 14.2 billion won.

The company sold 7 million smartphones in the last quarter and the volume will probably increase further in the fourth quarter, exceeding the shipments of basic phones for the first time, Chief Financial Officer David Jung said at a briefing in Seoul today. Much of that will be from the Optimus G model, Jung said.

“We’re trying to step up our marketing efforts to make sure our product competitiveness will lead to revenue growth,” he said.

The company, which aims to sell as many as 35 million smartphones this year, last month began selling the Optimus G smartphone. It features a 4.7-inch screen and a processor made by Qualcomm Inc. to operate on the faster fourth-generation Long Term Evolution, or LTE, networks.

Nexus Phone

Still, the improvements may not translate into sales because of competition with Apple and Samsung, Lee Seung Woo, a Seoul-based analyst at IBK Securities Co., wrote in a Sept. 24 report. LG is developing a Nexus smartphone based on the Optimus G for Google. LG will become the third manufacturer to build phones for the U.S. company, according to a person with knowledge of the matter.

The home-entertainment division, which makes TVs, had an operating profit of 88.6 billion won, unchanged from a year earlier. The median of four analyst estimates compiled by Bloomberg News was profit of 105.4 billion won.

A sharper-than-expected drop in TV prices in September cut into LG’s margins on set sales by more than 1 percentage point, Lee wrote in his Sept. 24 report.

Global TV shipments last year fell for the first time since 2004, according to DisplaySearch, part of NPD Group. Worldwide TV shipments fell 8 percent in the second quarter from a year earlier, the research company said Sept. 11.

OLED TV, Washing Machines

To beat the industrywide slowdown, LG is introducing new sets featuring 3-D screens and Web-based services. The company is also developing TVs using the organic light-emitting diode, or OLED, technology, which measure as thin as 4 millimeters and produces sharper images than LCD sets.

The company’s home-appliance division had an operating profit of 128.5 billion won, a 73 percent increase from a year earlier, on 2.9 trillion won in sales. That compares with the 119.8 billion won median of the four analyst estimates.

The business is benefiting from rising demand for large washing machines and refrigerators amid a recovery in the U.S. housing market, Kwon Sung Ryul, a Seoul-based analyst at Dongbu Securities Co., said in an Oct. 19 report.

The air-conditioner business had a profit of 11.8 billion won, compared with a 1.7 billion won profit a year earlier. The median of four analyst estimates was for a profit of 10.5 billion won.

To contact the reporter on this story: Jun Yang in Seoul at jyang180@bloomberg.net

To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net


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