Money Matters - Simplified

LG revenue leaps, but company still hangs in doldrums

LG Electronics Inc.announced a 47% boost in the net profit in its second-quarter. The business sale figures indicated an upswing due to the home appliance and flat-screen televisions divisions. But sale disappointments still loom high and the company has been incapable of coping up with giant high expectations of the sale of its handset business that is not doing great guns. The handset sales are getting scrawny and there is only a bleak possibility of a turnabout in the second part of 2012.

The handset business

The handset business of LG Electronics has always been a pillar of progress for the company but it slouched down into losses in April-June quarter. The handset business had displayed its profit picture in the last two quarters. The downslide of the profit points towards the high marketing costs incurred due to the astronomical expenditure invited in order to advertize the company’s latest smart phone models. The last blow the company faced is due to the falling prices of the Euro. The pressure on the company increased greatly pulling it into doldrums.

The market situation

Normally the holidays at the end of the year have the people rush to dish out cash for consumer electronics. It is recognized as a great time for business. Samsung Electronics Co. is the leader in flat screen televisions followed closely by LG. LG is the second largest flat screen producer by shipments.The market analysts’ verdict state, the earnings have crippled due to the handset division.

LG Electronics on Wednesday publicized information showing a total profit of 159 billion after the valid deductions, South Korean came first ($138 million) for 3 months till June 30, going upwards from a net profit of 108.4 billion that it had made the previous year. The result showed a drastic fall than the average 255 billion won net profit estimated by a poll by Dow Jones Newswires including six market analysts.

Due to this post, the price of LG’s share plummeted to as low as 2.6%.

The company published a working profit of 349 billion won, as measured up to 158.2 billion won the previous year, while sales knocked down from 10.6% to 12.86 trillion ($11.18 billion) won from 14.39 trillion won.

"The margin squeeze should continue into the third quarter," alleged TongYang Securities in a note. "LG Electronics will likely earmark more marketing spending to push up smartphone sales and the air conditioning division should suffer lower margins on seasonal weakness," it added.

LG’s handset division is struggling to find a foothold besides the aggressive price competition. There is a severe value contest in the smartphone segment due to the smaller Chinese competitors and sophisticated smartphone players such as Samsung and Apple.