A model shows LG's "Optimus G Pro" smartphone at the product's recent launch event in the United States. / Courtesy of LG Electronics
Firm improves profit in TVs, smartphones
Kwon Hee-won LG's TV chief
Park Jong-seok LG's mobile chief
By Kim Yoo-chul
LG Electronics has made a major comeback in televisions and smartphones ― two critical cash-generating sources.
A senior company executive said its home entertainment unit led by President Kwon Hee-won is the main reason for the comeback. The firm is the world's second-biggest TV manufacturer.
"We expect to see an increased profit margin in the second quarter as more demand for LG's premium TVs and lower costs help us improve our bottom line," said LG Electronics CFO Jung Do-hyun.
The CFO said the Yeouido-headquartered outfit is going to release more TV models with affordable pricing.
"We will try hard to boost the return on investment by spending more on new product releases. LG will gain more market share," Jung said in a recent meeting with institutional investors.
The company's home entertainment division is shifting toward profitable models such as ultra high-definition (UHD) TVs and OLED TVs.
In a statement to The Korea Times, LG said it has been diversifying the company's OLED TV lineup since the second quarter and stressed that the firm is hiring more research staff.
"LG will pursue profit-driven growth, not quantity-oriented expansion," the statement read.
The firm is also using its in-house digital chips and other patented technologies to make its premium TV models faster.
It is battling with its biggest cross-town rival Samsung Electronics for first-mover advantage in these lucrative segments.
However, because content is significant in the proliferation of UHD TVs, LG is working with Samsung and five Korean cable operators to make customized apps for smart TVs supporting UHD picture quality.
Sanford C. Bernstein Senior Analyst Mark C. Newman said the yen's depreciation is a further headwind for LGs' TV margin recovery going forward. He said initial reactions to LG's recently introduced value-added TV models were good.
LG secured the second position in the global TV market with a share of 16.5 percent during the first three months of this year, according to data from DisplaySearch, a display market research firm. This is an increase from 15.7 percent during the fourth quarter of last year and 14.3 percent from the quarter before.
Amid the rising popularity of Web-connected TVs, LG will expand its ongoing partnership with search engine giant Google.
Encouraged by the significant sales (10,000 TVs per month) running Google's Android platform in the United States, LG will bring Google TVs to Korea and China later this year.
Meanwhile, a recent meeting between Google CEO Larry Page and LG Electronics CEO Koo Bon-joon in Seoul raised speculation about further Google-LG products.
The two CEOs discussed plans on improving their business deals and partnering on new gadgets like the Google Nexus 5 smartphone.
New smartphones, appliances under way
LG's smartphone business is also growing. LG sold 10.03 million smartphones last quarter and expects its smartphone operating margin to improve this quarter.
For the first three months this year, LG was the world's third-biggest smartphone manufacturer after Samsung Electronics and Apple.
"LG Electronics is teaming up with LG Display to introduce our first unbreakable OLED smartphone, and we expect the new phone will be launched sometime in the fourth quarter of this year," said Yoon Boo-hyun, an executive at the firm's mobile communications division.
Jung said LG will launch its Optimus 2 smartphone, the company's much-anticipated model, in the latter half of the year at the right time. The CFO declined to elaborate further.
To make its Optimus line of devices more powerful, the company is fast developing its own processors, namely ARM-based chips.
LG licensed its Cortex-A50 series processors and next-generation Mali graphic processing units from British chip design firm ARM, to develop advanced system-on-chip solutions.
The visible improvements of the company's two main cash generators are prompting local brokerages to raise their targets on LG Electronics shares.
"LG is widening its market gap with fellow rivals in TVs and smartphones. We expect the company to report a 545 billion won operating profit in the second quarter, up from an earlier market consensus of some 400 billion won," said Cho Sung-eun, an analyst at Samsung Securities. The nation's top-ranked brokerage raised its target on LG to 130,000 won.
The company's home appliance division, which manufactures refrigerators, air conditioners and other white goods, is also expected to take off because the company has added Lowe's to its list of major distributors in North America.
"We are seeing more competition in Russia and South America. Because we don't need to spend more for marketing, the division's profit structure will remain healthy," said the CFO.
The statement issued by LG Group highlighted that its arduous transformation toward a market-leading company has begun to pay off since Chairman Koo Bon-moo urged executives to release exceptional consumer products faster.
"The results for OLED TVs and Optimus smartphones match the chairman's initiatives. LG's top management reached a consensus that LG should change its corporate nature to overcome market volatility and lead over rivals. We are proving that we can do that," said a spokesman at LG.