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| This concept image, provided by LG Electronics on July 5, shows the company's digital cockpit system. Courtesy of LG Electronics |
Vehicle component business swings to profit in Q2
By Baek Byung-yeul
LG Electronics is accelerating to diversify its business portfolio beyond home appliances and TVs which are seeing demand contracting due to soaring inflation and the floating interest rate, according to a company official and analysts, Tuesday.
The tech company has prepared multiple new sources of revenue, such as vehicle components, robots and digital healthcare, for its sustainable growth. Among these, automotive components and systems are showing both profitability and growth to the point where they can be regarded as one of the firm's main profit sources, they added.
"LG Electronics has been solidifying its leadership status in home appliances, which play a cash cow role in our portfolio. Our strategy is to retain a leading position in the sector and seek new growth engines," a company spokesman said.
On July 7, the company issued its preliminary earnings for the April-June period, saying it estimated that it had generated 19.47 trillion won ($14.8 billion) in sales and 791.7 billion won in operating profit.
What is surprising is that the company reported that its Vehicle component Solutions (VS) division shifted to a surplus in the second quarter of this year.
"The production disruptions of carmakers due to the shortage of automotive semiconductors have eased somewhat, and sales have increased to 2 trillion won, which is a rise from the same period last year as a result of our active response to additional demand," the company said in a regulatory filing. "Profitability also achieved a quarterly surplus due to increased sales and continued improvement in the cost structure."
This is the first time that the VS Division will post a quarterly surplus since the fourth quarter of 2015 when it logged an operating profit of 5 billion won.
LG's car-related business consists of three pillars. The first one is the in-vehicle infotainment system, the second is the smart light system and the third is the powertrain system for electric vehicles (EVs). For the EV powertrain, the LG Magna e-Powertrain joint venture between LG Electronics and Canadian car parts maker Magna International is expanding its business by holding a groundbreaking ceremony for an EV parts production plant in Mexico in April.
"It is noteworthy that the vehicle component business has achieved a clear turnaround in surplus because sales have increased along with the chip shortage issue easing," said Kim Kwang-soo, an analyst at eBest Investment & Securities.
"It is expected that the profit contribution of the vehicle component business will expand gradually due to its high selling price and profitability. The order balance is estimated to increase from 60 trillion won as of the end of 2021 to 65 trillion won in 2022."
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