LG Electronics swings to deficit on mobile downturn

By Yoon Sung-won

LG Electronics swung to deficit with an operating loss of 35.2 billion won ($30.18 million) in the fourth quarter last year on poor smartphone sales, according to its regulatory filing Wednesday.

The nation’s second-largest electronics maker said it posted 14.78 trillion won in sales in the quarter, slightly up 1.5 percent from 14.56 trillion won year-on-year. Its operating profit in the fourth quarter of 2015 was 349 billion won.

LG Electronics recorded an operating loss for the first time in six years since the fourth quarter of 2010.

In 2016, LG Electronics posted 55.37 trillion won in annual sales, down 2 percent from 56.5 trillion won in 2015. Its annual operating profit reached 1.34 trillion won, up 12.2 percent from 11.9 trillion won year-on-year.

LG Electronics has been hit the hardest by poor performance in the mobile business, as its flagship smartphone G5, to which the company ambitiously introduced a modular-type design, faced dismal results in the market.

Its Mobile Communications (MC) division alone recorded 457 billion won in operating loss in the quarter. It is the seventh consecutive quarter for the MC division to record loss. Throughout 2016, the mobile business division recorded 1.26 trillion won in losses. The sales of the MC division reached 2.9 trillion won, up 15.4 percent from the previous quarter’s 2.51 trillion won on the back of the strong performance of its newest premium handset V20 in the North American market.

The Home Appliance & Air Solution (H&A) division posted a record operating profit of 1.33 trillion won thanks to strong sales of premium models. Its television business also recorded the largest-ever operating profit of 1.24 trillion won in the quarter. But even such record gains could not prevent the company’s overall deficit.

LG Electronics said it will step up preparations for future growth engines such as vehicle components, robots, internet of things (IoT) and artificial intelligence (AI).

“We face increasing demand for integration of vehicle components such as infotainment and convenience parts. We also expect fierce price competition with Chinese companies entering this business,” the company said. “In the vehicle component division, we will concentrate on high-end products while seeking new business opportunities in the electric vehicle (EV) component business like the deal to supply components for GM’s Chevrolet Bolt EV.”

In the home appliances sector, LG Electronics expected expansion of premium product demand despite worldwide low growth.

“In the business-to-consumer (B2C) sector, we plan to stabilize income by expanding sales of premium devices such as Twin Wash washers and Magic Space refrigerators as well as luxury brand SIGNATURE products,” the company said. “We will also expedite growth in the business-to-business (B2B) side by fostering system air conditioner, built-in home appliance and component businesses.”

It also pledged to further boost performance in the TV business despite slowdown in demand, strengthening profitability through premium models such as organic light-emitting diode (OLED) TVs and ultra-high-definition (UHD) TVs.

LG Electronics said it seeks to rebound in the smartphone business through its new flagship model G6, which the company plans to unveil at the Mobile World Congress 2017 in Barcelona next month.

During a conference call, Wednesday, LG Electronics said it is seeking at least 1 trillion won in monthly sales this year after it pushed a human resources reshuffle and product lineup streamlining last year.

Meanwhile, LG Electronics said it is considering operating a manufacturing facility in the United States to deal with the increasing threat of protectionist policies under President Donald Trump’s administration.

“We have frequently faced anti-dumping lawsuits by foreign competitors even before the Trump administration. We expect a substantial impact should Trump’s remarks come true, considering our portfolio and manufacturing capabilities,” the company said during the conference call. “The establishment of a global manufacturing system has been our strength and we have preemptively dealt with risks in each country. We are considering running a manufacturing plant in the United States as one countermeasure.”

LG Electronics closed at 54,200 won on the Seoul bourse, Wednesday, up 0.18 percent from the previous day.