SEOUL (Reuters) - South Korea’s LG Electronics Inc (066570.KS), the world’s No.2 TV manufacturer and fifth-biggest handset maker, more than trebled its quarterly profit to $393 million as high-end TV sales picked up and handset margins improved.
In TVs - where LG had a more than 13 percent share of the global market in the fourth quarter of last year, according to DisplaySearch - the South Korean firm will launch a 55-inch flat TV using next-generation organic light emitting display (OLED) technology in several European countries in late May, well ahead of an original plan to launch in the second half, a source familiar with the matter told Reuters.
Quarterly profits from the TV division nearly doubled to 217 billion won, and margins jumped to 4.1 percent.
LG expects to sell more of its premium TV models that feature 3D and Internet-enabled functions, yet its profit growth is likely to come under pressure as competition heats up in the handset market, where local rival Samsung Electronics Co (005930.KS) is due to release a third generation of its flagship Galaxy smartphone next week.
LG’s handset business reported a second consecutive profit, of 35 billion won, after six quarterly losses, but profitability remains near breakeven as sales of its Optimus line-up failed to win customers away from the Galaxy and Apple’s (AAPL.O) iPhone.
January-March operating profit jumped to 448 billion won ($392.7 million) from 131 billion won a year ago, and comfortably beat a consensus forecast for 304 billion won profit by Thomson Reuters I/B/E/S. Profit in October-December was 23 billion won.
LG is coming under increasing competition in the low end handset market from China’s Huawei Technologies HWT.UL and ZTE Corp (000063.SZ) (0763.HK), which already outsell the South Korean firm in major markets, according to analysts. ZTE said this week it could be shipping 100 million smartphones a year by 2015. A total of 472 million smartphones were sold around the world last year, according to research firm Gartner, and Credit Suisse has forecast sales will top 1 billion by 2014.
Noting the improved TV profit margins, Kim Ji-san, an analyst at Kiwoom Securities, said: “It’s clearly benefiting from new product releases in the high-end sector with 3D sets, and gaining market share from struggling Japanese rivals.”
Under CEO Koo Bon-joon, LG, which was founded in 1958 as Goldstar, aims to shift back to technology leadership from a marketing and branding oriented strategy.
LG and Samsung, for now, dominate the television market over long-time leaders Japan, where Sony Corp (6752.T), Panasonic Corp (6752.T) and Sharp Corp (6753.T) expect to have lost a combined $21 billion in the business year just ended.
“(In the past) if you wanted a top quality TV you had to buy a Sharp, Panasonic or Sony. Those days are gone,” said Steve Durose, Senior Director and Head of Asia-Pacific at FitchRatings.
The Japanese, who ruled the global TV market in the 1980s and 1990s, have been battered by their aggressive South Korean rivals, weak demand for the TVs they make and a stronger yen that erodes the value of their exports.
Kiwoom’s Kim said the better handset margins - which improved to 1.4 percent from 0.4 percent in the fourth quarter - came as LG aggressively cut costs even as sales dipped to 13.7 million phones from 17.7 million in October-December.
Sales of home appliances such as fridges and washing machines dipped 3 percent due to weak demand in China, but profits jumped 48 percent and margins rose to 6 percent thanks to strong sales of high-end models and price increases.
Shares in LG, valued at close to $12 billion, last traded down 0.6 percent on Wednesday, after earlier gaining 1.5 percent, while the broader market .KS11 nudged 0.4 percent. The stock has dropped 16 percent in the past 5 weeks, touching a 3-month low on Friday, but it jumped 4.8 percent on Tuesday in its biggest one-day gain since February 2.
Reporting by Miyoung Kim; Editing by Ian Geoghegan