LG’s handset loss widens; TV remains profitable

SEOUL (Reuters) - South Korea’s LG Electronics reported a wider-than-expected quarterly loss on Wednesday, with its mobile phone division sinking deeper into the red, dashing hopes of a recovery in its struggling smartphone business.

LG’s handset business reported losses for a sixth consecutive quarter, with losses more than doubling to 140 billion won ($124 million) from the previous quarter’s 55 billion won. The results were hurt by a shortage of hit models to compete with Apple Inc and Samsung Electronics Co. Ltd. in the booming smartphone market.

Koo Bon-joon, the younger brother of LG Group’s Chairman and a member of its founding family, took over as CEO of the group’s flagship company a year ago to rescue its troubled mobile business, but its slow recovery has disappointed analysts.

In contrast, LG’s crosstown rival, Samsung, is expected to report strong growth in profit at its handset division on Friday and overtake Apple as the world’s biggest smartphone vendor in unit terms.

“I think LG Elec is going to struggle more, but not to the extent that it is being knocked out by Apple and Samsung,” said Park Yong-myung, a fund manager at Hanwha Investment Trust Management which owns LG Elec shares.

“Today’s earnings report does not ring the alarm because investors are already aware that it is doing badly. The issue of its floundering mobile business is already reflected in its shares, which almost halved,” he said.

LG, the world’s No.2 TV maker and number three handset maker, reported a July-September operating loss of 32 billion won ($28 million) versus a consensus forecast for a 54 billion won profit by Thomson Reuters I/B/E/S.

That compared with a loss of 185 billion won a year ago and a profit of 158 billion won in the preceding quarter.

LG’s three other divisions, TVs, home appliances and air conditioning, posted profit gains in the third quarter from a year earlier. Its TV division saw its operating profit rise to 101 billion won, compared with 86 billion won a year ago, despite weakening TV demand.

It said sales of premium TVs such as 3D models helped expand margins, although TV division’s profitability remains razor-thin at 1.9 percent.

“What can LG show in 2012 and 2013? Honestly, I can’t picture that,” said K.S. Jung, a fund manager at Eugene Asset Management.

“The time that LG made money from handsets and home appliances may be over...Its business can’t help but shrink without any breakthrough.”

LG faces a major challenge to introduce a compelling product in the high-end segment where it lost ground to companies such as Apple, Samsung and HTC.

Nokia, which reported a surprise quarterly profit last week, is also fighting back. The world’s largest cellphone maker plans to unveil on Wednesday its first phones using Microsoft software, hoping they will rescue its ailing smartphone business.

LG said its handset sales fell to 21.1 million units in the third quarter, from 24.8 million the previous quarter.

The business is the company’s biggest capital sinkhole. LG has lost 927 billion won from handset sales since the second quarter of last year.

The money-losing business has been also a major value destroyer for LG shareholders. Shares in LG, which has a market value of $10 billion, have lost 36 percent this year versus the market’s eight per cent drop.

LG trails Nokia and Samsung in handsets and competes with Samsung, Sony Corp and Panasonic Corp in flat-screen TVs.