(The following statement was released by the rating agency)
Nov 19 -
Summary analysis -- LG Electronics Inc. --------------------------- 19-Nov-2012
CREDIT RATING: BBB-/Stable/-- Country: Korea, Republic
Primary SIC: Household audio
Mult. CUSIP6: 50186Q
Credit Rating History:
Local currency Foreign currency
14-Oct-2011 BBB-/-- BBB-/--
08-Sep-2008 BBB/-- BBB/--
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