Weak Smartphone Lineup Hurts LG Shares
By Kim Yoo-chul
Staff Reporter
Investors are increasingly unloading shares of LG Electronics amid growing worries over its weak smartphone line-up and murky business outlook in the latter half of the year.
Skepticism over its competitiveness following the announcement that it will replace door locks on some 1 million washing machines are also leading investors to sell LG Electronics' shares, analysts say.
The announcement came days after a seven-year-old child was found dead inside one of its front-loading products at his home in Daejeon, South Chungcheong Province.
Share prices of LG Electronics, which posted 126,000 won on the first trading day of this year, declined by 15 percent to end at 107,000 won as of Feb. 26.
Institutional investors sold 118.4 billion won worth from Feb. 22 to 26, the biggest sell-off among listed companies on the main bourse, the KRX said Monday.
Foreign investors also unloaded 51.2 billion won worth of the company's shares ― the fifth biggest. Major foreign brokerages including JP Morgan, Goldman Sachs and Macquarie were listed as top sellers.
``LG Electronics is suffering from a freefall in its stock. I think that's due to an expected profit decline in its TV business in the second half,'' Kim Kap-ho, an analyst at local brokerage LIG Investment, wrote in a memo to clients.
Kim said LG Electronics is expected to see the current bearish move in stock prices as markets are worried over a possible decline in LCD panel prices and a flat-screen sector oversupply.
Although demand for flat-screen TVs including LED-backlit LCD TVs and three-dimensional TVs is likely to remain stable throughout the year, some ominous signs have begun to appear in the global panel industry as makers are ramping up production.
Its flat-screen affiliate LG Display has added concerns of drastic supply growth by saying that it was seriously considering an additional production line.
``Growing capacity will become burdensome for the panel industry and be a negative factor for LG Electronics' TV business in terms of profits,'' Jason Kang, an analyst of NH Investment & Securities, said.
Major producers of television sets and flat-screens were enjoying strong demand for flat-panel TVs thanks to the Lunar New Year holidays and major sports events such as Vancouver Winter Olympics.
But pessimists aren't sure whether the demand is real or not.
Controlling supply is the barometer for TV makers and panel manufacturers to keep their bottom lines in profits in the cyclical TV-related industry.
LG Electronics is the world's No. 2 maker of TVs, while LG Display is the second-biggest supplier of LCD panels.
Smartphone Woes
Analysts also say ``chronic worries'' over its weak smartphone portfolio are pushing investors to cut their appetite for LG Electronics' shares.
Japanese brokerage Nomura Holdings advised LG Electronics to increase its budget in smartphone-related sectors to recover falling mobile handset shares.
The brokerage also said LG Electronics has delayed the introduction of its Android mobile phones to customers of Verizon Wireless in the United States until May, while its upgraded Windows Mobile handsets will only be sold to corporate clients.
However, an LG Electronics spokesman declined to confirm this.
Another Japanese brokerage, Daiwa Securities, has also joined the ranks of naysayers in maintaining a weak share outlook for LG.
Daiwa has lowered its operating profit forecast and earnings-per-share target for LG this year by 6 percent and 9 percent, respectively.
As proof to back up LG's infant stage in smartphones, its mobile chief Ahn Seung-kwon said the world's No. 3 handset maker doesn't have any imminent plan to launch phones on its own mobile platform ― a different move from Samsung Electronics, which has launched its own operating system called Bada.
LG also skipped participation in the world's biggest telecommunication exhibition ― Mobile World Congress (MWC) ― last month, citing worries over copycat issues.
But analysts and officials say the cancellation was mainly due to ``few smartphone models.''
LG plans to beef up sales of these and unveil about 20 new models this year, with more than half of them running on Android.
The company, which has a partnership with Microsoft in the smartphone sector, will also roll out new handsets incorporating Windows Mobile and LiMo's Linux.
It has an ambitious target to achieve a double-digit share of the global smartphone market by 2012.
``Before this, LG Electronics needs to guarantee the operating system of its key phone models,'' an industry watcher told The Korea Times.
For the fourth quarter of last year, the operating profit growth of LG's mobile phone unit dropped 7.1 percentage points to 1.3 percent from the previous quarter's 8.4 percent due to meager smartphone line-ups.
In all of last year, LG's mobile business achieved 17.07 trillion won in total sales, while the yearly-based operating profit was 1.25 trillion won.
Sales rose 17.3 percent from the previous year, but operating profit declined by 22.1 percent year-on-year.
The mobile phone business is one of LG Electronics' key cash cows.
Of the total 2.8 trillion won LG reaped in operating profits for 2009, the portion from its phone unit was just below 50 percent, data from the Financial Supervisory Service (FSS) said.
LG plans to sell 140 million mobile phones this year, an increase of 19 percent from 2009.
``More groundwork will be implemented to strengthening our smartphone-related capabilities in 2010 in a way to eventually better penetrate into the sector,'' the spokesman said.