LG Electronics swings to loss on screens

LG Electronics, South Korea’s biggest home appliances maker, said Tuesday its display division was not likely to turn around until the fourth quarter after prices are expected to bottom in the first quarter.

The gloomy forecast came after LG reported an operating loss of Won43.4bn ($46m) in the fourth quarter, hit by the dismal performance of its flat panel display business.

“The first quarter won’t be easy. The digital appliance and mobile communications businesses are improving and are expected to post substantial operating profits, but in the case of the digital display business, PDPs (plasma display panels) are showing no signs of a turnaround,” Chung Ho-young, the company’s chief financial officer, told investors.

Losses at LG’s display division widened to Won147bn in the October-December period from Won81bn a year ago, as it was forced to cut prices of plasma display panels amid increasing competition with liquid crystal display makers in the large-size flat screen TV market.

However, LG posted net profit of Won48.2bn in the October-December period, down 84.6 per cent from a year ago. Its full-year profit dropped almost 70 per cent to Won211.9bn on sales of Won23,171bn. The company forecast a 9 per cent increase in 2007 sales to $44.5bn, including sales at its overseas subsidiaries.

The company plans to increase capital expenditure by 17 per cent this year to Won1,400bn as its new chief executive, Nam Yong, seeks to increase its LCD TV market share and boost its handset profitability. LG plans to sell 10.5m flat panel TVs this year, up 75 per cent from last year.

“PDP makers are losing the battle with LCD producers in the 40-inch segment, but the situation will get better in the fourth quarter as seasonal demand increases and PDP makers shift to the 50-inch segment, where they are more competitive,” said Kim Un-ho, an analyst at Prudential Financial.

Mr Kim said LG was performing better than expected in the competitive mobile phone market, which posted operating profit margins of 2.7 per cent in the fourth quarter.

The division reported a 70 per cent drop in profit due to lower prices as it struggled to compete against bigger rivals such as Nokia, Motorola and Samsung Electronics. LG aims to increase 2007 shipments by 22 per cent to 78m units.

The company’s home appliance business remained in the black on robust sales of its premium refrigerators and washing machines.