LG Electronics, the world?s fifth-largest mobile phone maker, said Tuesday it was facing ?difficult? business environment in 2005 due to the stronger won, weak domestic spending and unstable raw material prices.
The cautious outlook came after the company posted its lowest net profit in four quarters, due to losses from its home appliances and displayer businesses.
?Operating profit in the last quarter fell short of our expectations, due to the won?s sharp appreciation,? Kwon Yeong-su, the company?s chief financial officer, told investors. ?First-quarter earnings are likely to be lower than a year ago. So we?re trying to drive exports to generate as much profit as last year.?
Operating profit at LG Electronics fell 52 per cent to Won95bn ($92m) in the final quarter of 2004, as the stronger won ate into the company?s earnings by about Won100bn. The Korean won gained 11 per cent against the dollar over the quarter, making exports of LG Electronics more expensive. About four fifths of the company?s sales come from overseas markets.
?We are better prepared now than we were in the fourth quarter for the fluctuations in the foreign exchange rate, but we remain concerned about the effect it has on our earnings,? said Mr Kwon.
LG Electronics, which is also the world?s largest producer of microwave ovens and air conditioners, posted a net profit of Won143.6bn in the fourth quarter, compared with a net loss of Won17.2bn a year ago. Net profit for the whole year 2004 more than doubled to Won1,526bn, driven by strong sales of high-end mobile phones.
The company forecast handset sales to rise 40 per cent this year to 62m units and aims to break into the top three of the mobile phone market by 2006 as third-generation phones represent a bigger portion of global sales. The company plans to launch 10 new models this year.
?Its handset margins and shipments are relatively okay. If it can maintain its current profit margin of 5-6 per cent, we can say it is doing a good job, given the intense competition in the industry,? said Steve Oh, an analyst at Deutsche Bank.
LG Electronics was benefiting from its strength in folding ?clamshell? handsets and camera phones as consumers in the US and Europe shifted towards more sophisticated devices. LG won an order last year to supply 3m 3G phones to Hong Kong-based Hutchison Whampoa and clinched a similar deal with Orange, another leading European operator.
Its telecoms business took up 44 per cent of overall sales in the fourth quarter, while displayer and media account for 36 per cent and home appliances 20 per cent.
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