LG Electronics Inc fell short of consensus forecasts in quarterly
earnings on Wednesday, with profits in its TV division tumbling to
around one tenth of year-earlier levels as the world's No.2 TV maker
bumped up promotional spending in the year-end holiday season.
LG is
set to face a challenging year with forecasts from research firm
DisplaySearch calling for flat global TV sales on economic uncertainty
and as many households in developed economies already own a flat-screen
TV.
Currency rates also look unfavourable. The won has
strengthened, reducing the value of earnings made abroad while weakness
in the yen has boosted the price competitiveness of Japanese rivals.
LG's
October-December operating profit came in at 107 billion won, up 25
percent from a year earlier but below a consensus forecast for 151
billion won by 32 analysts surveyed by Thomson Reuters I/B/E/S.
The
result was broadly in line with a 116 billion won profit forecast by
Thomson Reuters StarMine's SmartEstimate, which places more emphasis on
timely projections from the most accurate analysts.
It was the first time LG reported under new South Korean accounting rules, resulting in changes to year-earlier figures.
LG
said the profit margin at its TV business declined for a second
straight quarter to 0.3 percent from 0.8 percent in the previous quarter
and 5.7 percent in the second quarter. The increase in marketing costs
coincided with greater price competitiveness from Japanese rivals who
have benefited from weakness in the yen.
Shares in LG have been
almost flat over the past three months, underperforming a 3 percent gain
in the wider market. Prior to the results, its shares rose 0.7 percent,
in line with a 0.5 percent rise for the broader market.
LG
reported a 468 billion won net loss after booking provisions related to
cathode ray tube TV price fixing charges. In December, the European
Commission imposed the biggest antitrust penalty in its history, fining
six firms including LG, Philips, Panasonic and others a total of 1.47
billion euros fur running two cartels for nearly a decade.
Also
hanging over LG is the prospect that a nascent recovery in its
struggling smartphone business may slow due to intensifying competition
from aggressive Chinese players such as Huawei and ZTE. Apple Inc is
also rumoured to be preparing a cheaper iPhone.
LG has struggled
to break into the high-end smartphone market, which Apple and Samsung
dominate. In the fourth-quarter it sold 15.4 million handsets, lifting
its mobile business profit to 55 billion won, versus a 2.5 billion won
loss a year ago.
Keen to steal a march on rivals and burnish its
reputation for TV technology, LG this month started taking pre-orders
for its next-generation 55-inch TV that uses OLED technology, allowing
for thinner displays that consume less power.
The TV, however,
commands a $10,000 sticker price and will probably not be boosting
profit margins anytime soon. LG is also expanding sales of 84-inch ultra
high-definition sets, which boast four times better picture quality
than full HD models.
LG has 18 percent of the global TV market,
trailing sector leader Samsung Electronics Co which has around 21
percent of the market. Japanese makers, led by the likes of Sony Corp,
Panasonic Corp and Sharp Corp, control around 30 percent.
© Thomson Reuters 2012
LG at CES 2013