LG reports increased profits, but TV business faces declining margins

30 Jan 2013

LG HQ

LG is the latest major consumer electronics company to report its 2012 results, and while sales are down, the company trebled its profits compared with last year.

However, while its Home Entertainment Company had record sales of TVs in the last quarter of the year, shipping 9.3m units, profitability was down, affected by price-competition and promotional costs.

Revenues for 2012 were KRW50.95tn (just under £30bn), down 6% on 2011, but operating profit rose to KRW1.14tn (£668m), compared to KRW379bn (£222bn) a year earlier.

The Home Entertainment Company had its strongest 2012 quarter in revenue terms in the last three months of last year, with revenues of KRW6.44tn (£3.77bn), a 17.4% increase on the previous quarter, and made full-year operating profit of KRW542bn (£317m).

TVs proving less profitable
However, the profit margin for its TV business was just 0.3% in the last quarter of the year, compared to 0.8% the previous quarter, and 5.7% in April-June 2011, caused by increased marketing costs and intensifying price competition.

LG UHD range

The company says it 'will continue to aggressively market 3D and Smart TVs and plans to expand its share of the premium TV segment in 2013 with Ultra HD TVs and OLED TVs', although it remains to be seen how successful this premium strategy will be in restoring profitability.

Analysts suggest the TV sector is all but saturated in developed markets, with most people having bought a flatscreen TV, and it remains to be seen how well developing economies will deliver in sales terms. The strengthening of the Korean won is also seen as a threatening factor, with LG's rival Samsung already having said it could have a major impact on 2013 profits.

At the moment LG has around 18% of the global TV market, putting it in second place behind Samsung on 21%.

Smartphone success
Meanwhile LG's mobile phone operations increased sales more than 7% in the last quarter of the year, thanks to the Optimus G, Vu:2, L series and Google Nexus 4.

More than half of the 15.4m phones it shipped in the last three months of the year were smartphones, the 8.6m of those it sold being up 23% on the previous quarter. Revenues rose 15% on the previous quarter, at KRW2.81tn (£1.65bn), and profit KRW55bn (£32m), compared to a KRW2.5bn loss in the last three months of 2011.

Whole-year phone revenues were KRW9.94tn (£5.8bn), down 13% year-on-year, but operating profit was KRW51bn, compared to a KRW280bn loss in 2011.

LG has set itself a 2013 target of revenues of KRW55tn, up almost 10% on its 2012 performance.

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