LG Electronics flags further mobile improvement after Q2 profit jump

  • TECH
  • Thursday, 24 Jul 2014

SEOUL: LG Electronics Inc signalled further improvement in its mobile business after record smartphone sales propelled the South Korean manufacturer to its highest quarterly profit in more than three years. 

Chief financial officer Jung Do-hyun on Thursday said mobile income should improve again in the current quarter with the help of LG's flagship G3 smartphone, which has been well-received by critics since its late-May launch. 

"We don't expect (mobile) profit to turn negative like last year," Jung said at an analyst conference after the company reported second-quarter earnings. "We expect further improvement." 

LG said operating profit rose 26.5% to 606bil won (RM1.86bil), compared with a 524bil won (RM1.61bil) estimate of 39 analysts polled by Thomson Reuters I/B/E/S. 

That marked LG's highest operating profit since at least 2011, the earliest date for which restated earnings are available. 

LG attributed part of the gain to a pickup in profit at its mainstay television set business, brought about in part by increased demand for ultra high-definition TVs. 

The company also said it shipped a record 14.5 million smartphones in the second quarter, when North American sales grew 39% from the previous three months. That carried the mobile business to its first quarterly profit in a year. 

"A key factor to watch is how well the G3 smartphone fares in the United States, but the outlook appears to be bright given the second-quarter numbers," said HMC Investment analyst Greg Roh. 

Shares of LG closed 4.2% higher after the earnings announcement, versus a 0.1% decline in the broader market. The stock has risen 13% this year, compared with 0.8% in the benchmark. 

G3 hope 

LG should see high single-digit annual revenue growth as well as an operating profit increase in the July-September period, Jung said. 

For third-quarter profit, the mean estimate of 39 analysts in a Thomson Reuters I/B/E/S poll is 404bil won (RM1.24bil), nearly double the year prior. 

"LG's profit will likely ease in the second half from January-June due to seasonally weaker air conditioner sales, but profit will continue to grow on an on-year basis and that's what's more important," said CIMB analyst Lee Do-hoon. 

Helping third-quarter profit will be sales of smartphones, particularly the G3 which was released in the United States and Europe earlier this month. 

Equipped with a high-resolution 5.5in screen and features including a laser focus for the camera, the G3 has been widely praised as a major upgrade to its predecessor G2. It will be launched in China, the world's biggest phone market, in August. 

"Reception for the G3 in North America has been very positive, even better than we had expected," LG vice-president Yoon Bu-hyun said at the conference on Thursday. 

To be sure, LG still faces an uphill battle in the smartphone market, in which its second-quarter shipments paled in comparison with the 35.2 million handsets of Apple Inc. 

The company said there would likely be greater competition in the second half of the year, with new products such as a large-screen successor to Apple's iPhone 5 series and continued price competition from Chinese manufacturers such as Xiaomi. — Reuters

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