Economic turmoil pressurizing Samsung, LG
Top TV makers challenged to achieve sales targets
By Kim Yoo-chul
As concerns are high about the inability of world leaders to deal with the European debt crisis or the faltering U.S. economic recovery, the world’s two biggest TV makers questioned the challenge of achieving their television sales targets that had been set early this year.
The United States and Europe are strategically important consumer markets for Samsung and LG Electronics, generating more than half the groups’ annual revenues, respectively.
But what’s more problematic is that it’s not clear how long this economic turmoil will go on.
Consumer sentiment for digital devices was freezing and product inventories were still high, while demand for premium televisions such as 3D TVs has been stalled.
Volatilities in foreign currencies were unexpectedly high, forcing the electronics duo to apply what they call ``contingency plans’’ amid unfavorable dollar-won moves.
Samsung and LG officials said they are closely monitoring the effects of the first-ever downgrade of the United States credit rating by Standard & Poor’s (S&P).
Despite such unexpected alarming signs even in Europe, the Korean electronics giants are a bit cautious for the business outlook and they are continuing a so-called ``scenario-based’’ management strategy, officials said.
In accordance with such uncertainties, global sales of TVs using liquid crystal display (LCD) screens this year are expected to be well below earlier market estimates of 220 million, a top LG executive said.
``Some market research firms were estimating that the market was at around 215 million units, however, the outlook was quite bullish and the growth will even be below that level,’’ said Kwon Young-soo, the chief executive of LG Display, the world’s second-largest manufacturer of LCD screens.
LG declined to give its outlook in the latter half, while the sector leader Samsung also has sided with LG by saying that the remainder of this year will be difficult.
And such a bearish business outlook even in the latter half of a year by the industry giants is rare, and officials say the stepped-back outlook is a first in the last few years.
Samsung warns currency volatilities
``We will try our best to achieve this year’s TV sales target despite worries over the global economic outlook throughout this year,’’ said Yoon Boo-keun, the head of Samsung’s TV division, Sunday.
Yoon, who is the top confidant of Samsung chief executive Choi Gee-sung, admits that more competition between rivals and lower-than-expected demand for digital products caused Samsung to suffer from consecutive declines in profit.
``Situations are very tough, however Samsung won’t cut our sales target this year,’’ said the Samsung president, adding the company’s fine-tuned supply chain management (SCM) structure will help it save its bottom line even amid the ongoing struggle.
The world’s biggest television manufacturer, Samsung’s target for televisions this year is 45 million units, which officials say is quite conservative.
``Usually, the latter half of a year is seasonally strong in terms of demand thanks to the back-to-school season and appetites to stockpile inventories ahead of year-end shopping season. But this year, we don’t expect to benefit from such seasonal factors,’’ said another Samsung executive, asking not to be identified.
Market research firms have cut their expectations for global TV shipments citing strengthening signs of economic downturn and a lack of interest in premium TVs such as 3D ones from much of the public in Europe and North America.
Strengthening South Korean currency against the U.S. dollar is posing another threat for Samsung’s overseas businesses as the gain in won makes Samsung products less competitive than products by rivals.
``Samsung’s average dollar-won currency rates in the second half is 1,040, which was revised from an earlier 1,100,’’ said a Samsung spokesman, adding a gain of 10 won against the greenback to cost 300 billion won to the electronics giant, annually.
LG to miss target?
Against the sector leader Samsung, its biggest cross-town rival LG Electronics is mulling the possibility of lowering this year’s TV sales target as LG forecast a worsening economy in Europe and the U.S. will threaten its business outlook.
The updated business plan by LG comes after the world’s No. 3 TV maker Sony of Japan has lowered its target for televisions in the fiscal year of 2011 to 22 million from a previous 27 million units mostly due to the sluggish TV demand in markets.
``LG Electronics is planning to lower its target by 20 percent to around 32 million and LG won’t spend more money for TV promotional campaigns as a strategy to secure profitability,’’ said another high-ranking LG executive who is familiar with the matter.
LG’s previous TV sales target was 40 million. The new plan is calling for LG Electronics to sell 28 million TVs with liquid crystal display (LCD) screens and 4 million plasma-based televisions, according to LG executives.
LG, which sold 13.6 million televisions during the first half of this year, has been known to be struggling to lower its TV inventories in North America and Europe.
``LG Electronics is checking sales and inventory figures on a monthly basis as the market is heading toward a downturn amid concerns about the U.S. economy and Europe’s capacity to overcome their debt problems,’’ said a senior LG spokesman.
But the official declined to confirm whether or not it has cut its previous sales targets.
LG Electronics also predicted that the dollar-won range will remain between 1,040 won and 1,050 won level from its early prediction of 1,080 won against the greenback.
``Chances are quite low that the U.S. economy will fall under a so-called `double-dip,’ however, business circumstances are very tough in last few years,’’ said the LG executive.
KOSPI, South Korea’s benchmark stock index, plunged more than 10 percent in only the last week ― Asia’s worst performer ― with key exporters including Samsung, LG, steel giant POSCO and the nation’s leading automotive group of Hyundai-Kia had stretched their heavy losing streaks, hit by heavy unloading by foreign investors, data from the Korea Exchange (KRX) showed.