Weak phone business drags on LG

South Korea's LG Electronics reported its lowest quarterly profit for 2013 today as its mobile business slipped into the red due to the cost of marketing its latest smartphone.

LG tried to strike a blow against mobile industry leaders Samsung and Apple in August with the lavish launch in New York of its G2 handset, and plans to follow up with a curved phone in the coming weeks.

But earnings may remain under pressure for the remainder of the year thanks to slow TV shipments, even though the G2 phone will contribute more to the company’s bottom line in the October-to-December period after a full quarter of sales.

Third-quarter operating profit rose 27 per cent to 218 billion won (€149 million), below a consensus forecast of 306 billion won by Thomson Reuters. The July-to-September earnings compared with 171 billion won a year ago and 479 billion won in the second quarter.

The world’s third biggest smartphone manufacturer said its handset operation made an 80 billion won loss, versus a 4 billion won loss a year ago and a 61 billion won profit in the second quarter.

In the television business, LG said profits improved to 124 billion won compared with 29 billion won a year ago. Margins stood at 2.5 per cent, their highest since the second quarter of last year.

The profit growth was attributed to tight marketing expenditure, which helped iron out a fall in revenues from a year ago largely due to the weak Chinese market.

Global television manufacturers are battling slumping demand growth in China as well as in developed markets where households have replaced cathode ray tube TVs with flat-screen models.

They are betting bigger-ticket products such as ultra high-definition (UHD) models and organic light emitting diode (OLED) lineups help counter slowing TV shipments, even if high production costs price them beyond reach for many consumers.

LG has slashed the price of its 55-inch UHD a couple of times this year. Even so they still sell for some 5 million won (€3,415), around double the price of standard LCD TVs.

Shares in LG have fallen nearly 4 per cent over the past three months, lagging the wider market’s 7 per cent gain.

They were trading down 0.4 per cent after the result in a flat market. (Reuters)