TEXT-S&P summary: LG Electronics Inc.

Mon Nov 19, 2012 3:23am EST

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(The following statement was released by the rating agency)

Nov 19 -

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Summary analysis -- LG Electronics Inc. --------------------------- 19-Nov-2012

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CREDIT RATING: BBB-/Stable/-- Country: Korea, Republic

Of

Primary SIC: Household audio

and video

equipment

Mult. CUSIP6: 50186Q

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Credit Rating History:

Local currency Foreign currency

14-Oct-2011 BBB-/-- BBB-/--

08-Sep-2008 BBB/-- BBB/--

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Rationale

Our ratings on Korea-based consumer electronics maker LG Electronics Inc. (LGE; BBB-/Stable/--) reflect Standard & Poor's Rating Services' assessment of the company's "satisfactory" business risk profile and "intermediate" financial risk profile. LGE's key business strengths include its good position in global markets for a broad range of consumer electronics products, good geographic diversification of sales, and wide portfolio of products--featuring well-known brands. Offsetting these factors are cyclical demand for electronic products, including sensitivity to global economic conditions; fierce competition and short product lifecycles in the handset business; and weak profitability in its display panel business.

In our view, LGE's good market position and business diversity will continue to support the company's "satisfactory" business risk profile over the next one to two years. LGE maintains satisfactory positions in global markets for a number of consumer electronics products, including digital TVs, refrigerators, washing machines, and air conditioners. LGE is the world's second-largest manufacturer of TVs, with about 15% of the market, behind Samsung Electronics Co. Ltd. (A/Positive/A-1), with about 21%. LG Display Co. Ltd. (LGD; not rated), a 37.9%-owned LGE affiliate, also holds a good position in the global market for large liquid crystal display (LCD) panels, with about a 27% share of total shipments. In analyzing LGE, Standard & Poor's takes a fully consolidated approach, including LGD and LG Innotek Co. Ltd. (LGI; not rated).

In our view, LGE has a geographically well-diversified business portfolio. During the first half of 2012, LGE made about 80% of its total revenues in overseas markets--21% from North America, 20% from Asia (excluding Korea), 10% from Europe, and 13% from Central and South America. Together with good positions in relatively stable businesses, such as washing machines and refrigerators, LGE's good geographic diversity should partially offset volatile demand in the electronics industry, in Standard & Poor's view.

However, intense market competition, rapid technological change, and the company's weak operating performance in the handset business constrain the current ratings. LGE made an operating loss in its handset business in 2011 after failing to introduce smart phones fast enough to counter their rapid replacement of feature phones. LGE's share of the global handset market dropped to about 4% in the first half of 2012 from about 10% in 2009, and the company's share of the global smartphone market remains relatively low at around 4%. Although we expect LGE's position in the global smartphone market to stabilize thanks to relative strength in hardware technology, it remains uncertain whether the company can overcome intensifying competition in the handset industry.

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