LG Maintains Upward Growth Trajectory
By Kim Tong-hyung
LG Electronics doesn't intend to be in second place forever behind its bitter industry rival Samsung Electronics. And the domestic battle has grown into a global one in recent years, with the two Korean high-tech juggernauts emerging as world beaters at the expense of competitors from Japan, Europe and North America.
Obviously, Samsung clearly has the upper hand in the Korean business sector's fiercest rivalry, as it is now the world's largest maker of consumer electronics products and memory chips.
However, LG is now starting to give Samsung Electronics a run for its money, gaining ground in the two areas Samsung calls its major markets ― flat-screen televisions and mobile phones.
LG recently edged Sony to trail Samsung as the second-largest maker of liquid-crystal display (LCD) televisions. The company is also the world's No. 3 handset vendor behind Nokia and Samsung, passing companies like Sony Ericsson and Motorola.
LG officials believe that 2010 will provide a truer test of the company's mettle, with Samsung eager to cement its leadership, and other global electronics giants such as Sony, Sharp and Motorola looking to put up a stronger fight to regain their lost market share during the recession.
However, LG seems confident of meeting the challenge head-on, inspired by a robust third-quarter driven by brisk sales of flat-screen televisions and mobile phones.
LG, which currently trails Samsung as the No. 2 liquid-crystal display (LCD) television maker, posted a sharp increase in net income and operating profit during the July-September period and expects its momentum to carry on to the holiday season.
The third-quarter net income of 807.2 billion won was more than a 30-fold increase from the 24.9 billion won during the same period last year, while global revenue rose to 13.9 trillion won, compared to the 12.1 trillion won a year earlier.
LG's third-quarter operating profit rose to 850.2 billion won from 570.5 billion won during the same period last year.
There are worries that LG will post more modest numbers in the fourth-quarter, with the price erosion in the television and mobile phones business and also an expected increase in marketing expenses resulting in lower profitability.
However, most industry watchers believe that the expected drop-off will be at a manageable level, and LG will still be able to finish 2009 on a high note.
``The expected increase in marketing expenses is certainly a concern, but LG will still be able to see a significant increase in profit compared to last year,'' said Kang Yun-heum, an analyst from NH Investment Securities, who expects LG's fourth-quarter operating profit to be around 566.4 billion won.
``The upcoming high-demand season for televisions could make up for the expected decline in the company's handset business, so LG's fourth-quarter numbers may look better than many expect. We expect the company to finish 2009 with an operating profit of about 3.05 trillion won, which will be a new record, and the number to be around 3.23 trillion won in 2010,'' Kang said.
Although the increased marketing expenses and the renewed challenge of Motorola in the handset market are worrisome factors for LG, Kang believes that the company's new ``smart'' phones, which provide higher margins than conventional products, and premium television models would help it retain its competitiveness.
The company's growing mobile-phones business accounted for a significant part of third-quarter profit. LG sold 31.6 million handsets in the third quarter, up from 29.8 million units in the previous quarter.
The sales of flat-screen televisions rose 24 percent year-on-year to 4.9 trillion won after the company sold a record 4.01 million LCD television models.
The company expects to sell 25 million LCD televisions next year, compared to the projection of 17 million units for 2009, and plans to bank on the lucrative potential of light-emitting diode (LED) backlit LCD televisions, which are quickly becoming the key premium products in televisions.
LG expects to sell around 5 million LED backlit models next year and also said that its new flat-screen televisions released this year, including the ``Borderless'' LCD television, neatly designed to appear as a single sheet of glass with the border around the television being black and flat.
LG, which has been providing 40-inch and 50-inch models, plans to diversify its LED-backlit lineup by introducing 26-inch and 60-inch models next year.
The mobile phone market may prove as a more difficult challenge for LG, as the company still has a lot of room for growth left in the smart phone segment. Despite the record number of handsets sold in the third quarter, LG's profit margin in the handset business actually declined to 8.8 percent from 11 percent in the previous quarter.
LG has been pushing new premium phones in waves in the past year, but has yet to have a product that could compete convincingly with the iPhones and Blackberries of the world, which is reflected by its weakening sales in the United States.
The company has recently launched the second version of its ``Chocolate'' touch screen phone and is expecting to market three smart phone models, equipped with the Windows Mobile operating system, and another handset powered by the Google-backed Android operating system during the fourth quarter.
``The success of the smart phones requires competitiveness in both the hardware and software side, and LG, which doesn't have much to show for on the software front, has to be better prepared for this market,'' said Yoo Jong-woo, an analyst from Korean Investment Securities.
Verizon, the biggest North American mobile operator, is moving to strengthen its smart phone lineup, adding the latest handsets from Motorola and Palm to its existing Blackberry handsets, which may all add up to be a negative factor for LG's North American business. Motorola's Android-powered handset, Droid, is certainly a product to watch out for.