LG posts loss after EU fine

Despite its improved smartphone sales, LG had a fourth quarter loss thanks to an EU fine.

Story highlights

  • LG Electronics reported an unexpected loss for the fourth quarter
  • A fine in the EU for price-fixing outweighed an improved mobile phone business
  • LG Electronics, the world's second-largest television maker by revenue

LG Electronics, the world's second-largest television maker by revenue, reported an unexpected loss for the fourth quarter as a big fine in the EU for price-fixing outweighed an improved performance in its mobile phone business.

The South Korean company suffered a net loss of Won468bn ($432m) in the October-December period, widening from a Won112bn loss a year earlier.

In December, LG, which derives about half of its sales from TVs, was fined €492m by the EU antitrust regulator as part of a record combined €1.47bn price fixing penalty on cathode-ray tube TV makers including Philips, Panasonic and Toshiba.

The profit margin at LG's TV business shrank to 0.3 per cent in the fourth quarter from 0.8 per cent in the third quarter due to slowing demand as the company struggled to compete with Japanese rivals. The Korean won gained 4.4 per cent against the US dollar in the fourth quarter while the Japanese yen dropped about 10 per cent in the same period, making Japanese rivals more price competitive.

However, LG posted an operating profit of Won107bn in the fourth quarter, up 25 per cent from a year earlier, on record smartphone sales of 8.6m units. The mobile phone business recorded a quarterly operating profit of Won56.3bn.

"Its mobile phone unit performed better than expected but the TV business is in worse shape as LG focused on TV volume growth rather than profitability by cutting prices," said Jae Lee at Daiwa Securities.

LG has made headway in the high-end smartphone business, with its flagship Optimus G selling more than 1m units by the end of last year after its launch in September. That helped LG leapfrog Apple into second place in the US mobile phone market with a market share of 13 per cent as of December, according to Hong Kong-based analysis firm Counterpoint Research.

But LG still has a long way to go to catch up with bigger rivals such as Samsung as it still struggles to gain market share in Europe and elsewhere, said Mr Lee.

Analysts expect LG to sell 40m smartphones this year, up 54 per cent from last year, but that is still far short of Samsung's forecast shipments of 300m units. LG's shares have fallen nearly 10 per cent in the past year while Samsung's have gained some 30 per cent.

The stronger won will be the biggest threat to LG's earnings this year as price competition in the smartphone market intensifies. Samsung said last week that the stronger local currency would erode its operating profit by at least Won3tn in 2013.

Meanwhile, slowing sales of iPhones and iPads could have a knock-on impact on SK Hynix, the world's second-largest memory chipmaker by sales. The South Korean company swung to a profit in the fourth quarter on strong demand for chips used in mobile devices, but said it faces a tough year amid mounting worries that Apple, which reported disappointing iPhone sales numbers last week, may reduce its orders. Apple is SK Hynix's biggest customer, generating about 30 per cent of the Korean group's revenue.

Shares in LG Electronics ended flat on Wednesday while SK Hynix added 0.6 per cent.