South Korea's LG Electronics beat expectations with a record second-quarter profit and is set to outperform its peers this year thanks to a weak local currency and a strong line-up of mobile phones, TVs and appliances.
Although the results were better than expected, the phone maker cautioned third-quarter mobile margins could slip, and analysts also voiced concerns about the economic outlook and rising competition.
“The second quarter is usually the peak season for LG,” said Choi Hyun-jae, an analyst at Tong Yang Securities. "Global economic risks remain and fierce marketing competition among new products could also result in price reductions.”
But new premium products such as the multimedia touch screen phone ARENA, plus steady sales of mid-range phones are helping LG expand market share in mobile phones despite the current downturn.
LG is also benefiting from strong sales of flat-screen TVs and improving earnings at affiliate LG Display Co Ltd.
“LG Electronics expects sales to grow over 10 per cent year-on-year (in the third quarter) as demand for LCD TVs and mobile phones continues to expand, with profitability comparable to last year's level,” LG said in a statement today.
LG shares fell 1.9 per cent against a flat broader market as the strong results had been largely priced in. The stock has risen about 76 per cent so far this year, outperforming the broader market's 32 per cent gain.
LG, which trails Nokia Oyj and Samsung Electronics in mobile phones, sold a record 29.8 million handsets in the second quarter, up from 22.6 million units in January-March.
LG posted an 11 per cent operating profit margin in handsets, compared with 6.7 per cent posted in the first quarter, a figure Choi said was “pretty remarkable.”
Last week, Nokia downgraded its expectations for second-half underlying operating margin to the first-half level of 11.3 per cent, compared with expectations of 17.4 per cent.
Nokia also slashed market share forecasts, and analysts say increasingly aggressive price competition from Samsung and LG is hurting the world's top cellphone maker.