Price cuts take toll on LG Electronics

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LG Electronics, the world's fourth-largest mobile phone maker, reported a worse than expected 70 per cent fall in second-quarter earnings, as stiff competition drove down prices of handsets and flat-screen TVs.

The results underscore the competition that South Korean mobile handset makers are facing from bigger rivals such as Nokia and Motorola, as growth in demand for new phones slows in advanced countries such as the US and Japan.

Net profit at LG Electronics plunged almost 70 per cent to Won150.6bn ($146m) in the April-June period from a year earlier while revenue fell 7 per cent to Won5,615bn.

The company reported its first operating loss of Won4bn, with operating profit margin slipping to minus 0.2 per cent.

The South Korean company expected the “difficult” business environment to persist in the current quarter. LG's cross-town rival Samsung Electronics reported last week a 33 per cent drop in operating profit from telecoms and Sony Ericsson, the mobile phone joint venture between Sony and Ericsson, reported a 19 per cent fall in second-quarter profit.

“Their bottom line was hurt as competition in the handset market increased while growth slowed,” said Lee Jung-chul, an analyst at Mirae Asset Securities. “But I think the business hit the bottom in the last quarter and average sales prices are likely to rebound in the second half.”

LG again missed its handset shipment target in the second quarter, selling only 12.1m units as a result of delayed releases of new models. Market research company Strategy Analytics forecast industry shipments would rise 8 per cent this year after jumping 32 per cent to 680m units last year, while average handset prices fell 4.9 per cent to $155 this year.

Kwon Young-soo, LG's chief financial officer, told investors yesterday that earnings would improve in the third quarter, as handset margins were expected to turn positive and the plasma display panel (PDP) business was likely to break even.

“We expect all of our business lines, except for appliances, to show an improvement,” Mr Kwon said.

LG's display business, including PDP sales, reported a Won22bn loss in the quarter.

Mr Kwon said PDP prices had begun to stabilise, following a drop in the second quarter.

LG Philips LCD, a joint venture between LG and Philips, suffered a 94 per cent slump in second-quarter profit amid a supply glut.

LG's operating profit from its home appliance division fell 5.8 per cent to Won162bn.

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