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July 26, 2012

LG Turns a Profit Despite Lagging Smartphone Sales

Korean electronics company, LG reported a Q2 profit of $138 million despite a 28 percent decline in its smartphone sales. LG blamed sluggish profit margins on the high costs of launching multiple new smartphone models during the quarter and shrinking feature phone sales.

Overall, the company’s profit increased 46 percent, driven by growth in home appliances, home entertainment and energy solutions. LG credited its achievements to aggressive cost reductions, more premium products and a strategy of focusing on developing markets.

Smartphone shipments rose to 44 percent of LG’s mobile communications division output, and LG plans to launch new 4G LTE models in the latter part of the year in North America, Europe and parts of Asia. The company hopes that increased smartphone shipments will make up for retraction in its feature phone segment.

In the meantime, home appliance revenue increased threefold despite weak demand for appliances in developing markets. The increase resulted from a better product mix as well as improved cost efficiency.

LG Home Entertainment doubled its profit over the same time last year thanks to improved supply chain management and an increase in premium product sales. While sales declined 5.8 percent, they did increase over Q1 sales by about two percent.

LG also plans to introduce more energy-efficient solutions and to increase its focus on its commercial air conditioning business. Air Conditioning and Energy Solution profits increased by 17 percent, despite weak sales of residential air conditioners in Korea and sluggish demand in developing markets.

Other business segments were not so healthy. LG Display Co. posted its fourth straight loss in Q2 due to weak demand for television display panels. The company also paid a sizable settlement in a U.S. lawsuit over price-fixing allegations.

Sales of display screens have stagnated because of weak demand for LCD television sets. However, the Chinese government has just begun to offer subsidies for energy-efficient household products, so LG Display CFO James Jeong expects the demand from Chinese customers to take care of LG’s oversupply problems.

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Edited by Brooke Neuman

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