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By John Park

LG Electronics will be able to claim a reputation as a global smart device powerhouse this year with its handset business coming around. The worldwide debut of the Optimus LTE is the opening salvo of LG Electronics’ global marketing as its first answer to the global revolution taking place in the way people communicate.

The company has been upgrading its handset technology competitiveness since its Optimus 2X arrived last year with a dual core processor. Armed with the world’s biggest library of patents on the long-term evolution (LTE) technology, LG Electronics looks well-positioned to stage a comeback after its 3G setback as the smartphone industry’s shift from 3G to 4G (LTE) is accelerating.

LG Electronics’ mobile phone competitiveness and handset margins are primed for a turnaround for the following reasons:
First, the company will become profitable on handsets as smartphone sales account for a greater portion of the handset business.
Since the Optimus One’s release in the fourth quarter of 2010, LG Electronics have been putting out premium handset models one after another: Optimus 2X, Optimus 3D that really put LG’s name on smartphones, and Optimus LTE as a 4G smartphone. The company’s product mix is strengthening with less exposure to low-margin feature phones, adding support to the turnaround scenario in the first quarter of 2012 at the earliest.

Smartphones accounted for 25 percent of the company’s total handset shipments in the second quarter of 2011, and the figure is expected to have exceeded 30 percent in the final quarter of 2011. The rising shipment share of smartphones is helping the company cover fixed costs and reach a breakeven point on handsets.

Second, the company is increasing its market share in the 3D TV market, aided by its brand power and technology strengths. LG Electronics is working closely with LG Display on film patterned retarder (FPR) technology to outcompete Samsung Electronics and expand its market share.

Third, LG Electronics’ focus on strategic products in smartphones, smart TVs and other smart appliances will sharpen its competitive edge and drive strong growth in 2012. Collaboration with LG Chem, LG Display and LG Innotek makes it easier to build a line-up of premium products with differentiated qualities.

In 2010, LG Electronics was an odd man out due to its weak premium handset line-up, while rivals were going high-end. Apple’s retina display and 5M camera module for its iPhone 4 and Samsung’s AMOLED were good examples. But in 2012, LG Electronics is catching up by rolling out premium handsets with high-end features.

LG Electronics’ shares tend to closely track handset margins. Between 2007 and 2009, the company’s global market share surged from fifth to third on the back of hit feature phones like Prada and Chocolate, and its share prices hit all-time highs.

In 2012, LG Electronics shares will likely rally as its handset business is staging a turnaround powered by its lead in the LTE market and the ability to develop global hit products

John Park is an analyst at Daishin Securities.