LG Electronics swings to loss on smartphone woes

LG Electronics Inc. reported Wednesday a worse-than-expected net loss for the third quarter due to the struggling smartphone business and equity losses from LG Display Co.

But the company gave an upbeat outlook for the coming months as its TV and smartphone sales are expected to go up with the debut of new high-end models, which would drive modest growth in profit, its chief financial official said.

"Fourth-quarter profitability will slightly improve from the previous quarter," CFO Jung Do-hyun said at a meeting with investors. "The handset business is also expected to enhance its profitability as we improve our product portfolio."

Net loss amounted to 413.9 billion won (US$366.7 million) in the July-September period, compared with 75.7 billion won of net profit one year ago, the company said in a regulatory filing.

The loss was bigger than the market consensus of a 102.1 billion won loss, according to 13 analysts polled by Yonhap Infomax, the financial news arm of Yonhap News Agency.

Sales fell 4 percent on-year to 12.9 trillion won in the three-month stretch. Operating loss reached 31.9 billion won, compared with a 185.2 billion won loss a year earlier.

Shares of LG Electronics closed at 77,500 won on the Seoul bourse, up 2.24 percent from Tuesday's close, as investors bet that the company hit the bottom in the third quarter.

"Shares rose on expectations for the fourth quarter," said So Hyun-chul, an analyst at Shinhan Investment Corp.

In the third quarter, the sluggish recovery of the smartphone division and subdued demand for TVs in Europe, coupled with the local currency's depreciation against the U.S. dollar, dealt a blow to LG's bottom line, the company said.

Its mobile communications division lost 138.8 billion won in the three-month period, staying in the red for a sixth straight quarter since the second quarter of 2010.

Even though LG is the third-largest maker in the overall handset market after Nokia Corp. and Samsung Electronics Co., it failed to narrow gaps with faster-moving rivals like Apple Inc. and Samsung in the smartphone segment.

LG said it sold 21.1 million handsets in the three-month stretch but declined to disclose smartphone sales figures.

LG probably shipped 4.9 million smartphones in the quarter, according to HMC Investment Securities Co. analyst Noh Geun-chang.

Apple said it sold 17.07 million iPhones during the same period. Samsung sold more than 20Global ratings agencies, including Moody's Investors Service and Standard & Poor's, downgraded the company's outlook earlier this month, citing the reduced competitiveness of its mobile communications division.

Mobile business is one of LG's four major operations along with TVs, home appliances and air conditioners.

Dismal mobile performance overshadowed improvements in the company's other business operations. Despite low demand for consumer electronics in developed economies, LG sold 6.8 million flat-screen TVs in the third quarter thanks to solid demand from developing regions, it said.

Its home appliance division posted an operating profit growth from the previous year and from the previous quarter, as its sales increased in emerging economies and in South Korea, it added.

In the fourth quarter, the company expects its quick move to clinch a bigger share in the emerging fourth-generation (4G) wireless market will help its handset business recover. TV sales will also increase during the end-of-the-year holidays, its CFO said.

LG announced the Optimus LTE smartphone on Oct. 10 in Korea, which runs on the faster wireless networks called long-term evolution (LTE). LG is launching the model in Japan and the U.S. during the current quarter.

Samsung and Taiwan-based HTC Corp. also released LTE handsets compatible with the high-speed networks but Apple has yet to make an entry into the market.

"As Apple is not expected to break into the LTE phone market during the first half of 2012, LG's mobile communications division will likely improve its performance going forward," HMC analyst Noh said.

Market response to LG's LTE phone has been positive, according to the Shinhan analyst. (Yonhap)