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January 24, 2006 4:45 pm

Handset sales drive profits up at LG

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Quarterly profit at LG Electronics, the world’s fourth-largest mobile phone maker, nearly doubled, driven by stronger sales of cellular phones, which offset an operating loss in its display division.

Analysts expect the South Korean company’s growth momentum to continue this year, as its new handsets such as the slide-up phone named “Chocolate“ drive sales and demand for large-sized plasma display panel TVs continues to rise.

The company reported a Won312.2bn ($320m) profit in the October-December period, compared with Won163.4bn a year ago.

But full-year profit in 2005 dropped to Won703bn from Won1,546bn in the previous year, hit by the stronger won, higher oil prices and lower flat panel prices.

The company sold a record 16.2m mobile phones in the fourth quarter and its
operating profit margins in the segment improved to 8.1 per cent from 5 per cent in the previous quarter, helped by strong shipments of third-generation W-CDMA phones.

LG aims to sell 70m mobile phones in 2006, up 27 per cent from last year’s 55m, as the global mobile phone market is expected to grow 5-10 per cent to 820m-860m units on increasing demand from emerging markets.

Analysts expect shipments to get weaker in the first quarter as LG’s major customers such as Verizon Communications and Hutchison Telecommunications clear inventories. But they said sales would improve in the second half, once the Chocolate phones are launched in the GSM market in March.

LG has seen its market share fall, following Motorola’s launch of the popular Razr phone .

“LG floundered for a while, after Motorola launched the Razr phone, but it has improved design and functionality of its new phones, so its market share will increase in the second half,” said James Kim, an analyst at Lehman Brothers.

LG’s display division is also expected to perform better this year.

Demand for large-sized PDP TVs is expected to increase sharply on the back of the 2006 soccer World Cup, but pricing pressure will continue due to increasing competition from liquid crystal display makers. LG yesterday announced a plan to invest Won282bn to boost PDP production capacity and an agreement with Poland to build a €101m ($124m) plant to produce LCD TVs and home appliances.

LG shares jumped 3.7 per cent to end at Won80,700, outpacing the wider market’s 2.3 per cent gain. LG’s shares have risen 28 per cent in the fourth quarter.

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