LG Elec Q3 net profit halves, outlook brighter

SEOUL (Reuters) - South Korean appliance maker LG Electronics Inc reported a worse-than-expected 48.5 percent drop in third-quarter net profit on squeezed margins in mobile phones and a falling earnings from its flat screen joint venture.

Operating profit did nearly double from the second quarter on higher mobile phone sales. Strong demand for high-end phones from clients including Verizon Communications Inc is expected to help the world's fourth-largest mobile phone maker in coming months, analysts said.

"Considering new handset line-ups expected in the coming months, the positive trend for the handset business is expected to continue into the fourth quarter," Seo Jung-ho, a fund manager at Daehan Investment Trust Management.

LG, also the world's top producer of air conditioners, earned 156.9 billion won (US$149.7 million) in net profit for the quarter ended 30 September, falling short of analysts' forecasts of a 220 billion won profit.

That compared with a profit of 304.4 billion won a year before. The net profit rose 4.2 percent from the previous quarter's 150.6 billion won.

Sales were 6.02 trillion won, below analyst estimates of 6.04 trillion won and 6.11 trillion a year ago.

LG reported an operating profit of 279.9 billion won, down 21.2 percent from a year ago, but up 94.5 percent from the previous quarter.

Shares in LG, which competes with Samsung Electronics Co Ltd in making handsets and TVs, fell 0.7 percent to 71,400 won against the wider market's 0.8 percent gain. The stock rose 6.2 percent in the third quarter, lagging the KOSPI's 21 percent rally.


Turnaround?

LG is recovering from its first operating loss from handset sales in the second quarter, when margin-crushing competition wiped out profits. To boost efficiency and cut costs, the company has pooled its mobile phone operations in a plant near Seoul in effort to cut costs.

The company issued its profit figures five hours ahead of schedule after a South Korean newspaper published some figures citing an internal company document.

Maeil Business Newspaper reported the operating profit margin at LG's mobile phone division rose to about 5 percent driven by recovering profitability in mobile phone sales, up from 0.4 percent in the second quarter.

In the third quarter last year, LG reported operating profit margin of 9.3 percent from its mobile phone division.

LG is set to reveal further details of its earnings later on Tuesday.

The company's display division, which makes plasma flat screens and computer monitors, is also set to benefit from more stable flat panel prices as the industry rebounds from a year-long slump.

Last week, LG.Philips LCD Co. Ltd., LG's liquid crystal display (LCD) joint venture with Dutch Philips NV, reported its third-quarter profit jumped five-fold from the June quarter on stronger demand for flat-screen TVs.

However, it was still 22 percent lower from a year ago as panel prices remained well below their 2004 peak.

LG, which overtook Siemens last year as the world's number four mobile phone maker, ranks behind Nokia, Motorola and Samsung.

LG is also the world's number three producer of household appliances in revenue terms, behind Sweden's Electrolux and Whirlpool Corp of the United States. It started selling its high-tech washers at US retailer Home Depot in the third quarter.

Additional reporting by Kim Yeon-hee.

hardware lg lg elec lg electronics