LG Electronics reported profits under pressure in the second quarter, led by losses at its mobile division as its latest flagship smartphone failed to sell enough. Revenues were up 0.6 percent year-on-year to KRW 14.00 trillion, as growth in its other divisions helped offset the weak performance in mobile. Operating profit dropped to KRW 584.6 billon from KRW 505.2 billion a year ago, while lower financial and one-time costs helped net profit rise to KRW 268.5 billion from KRW 198.1 billion.
Mobile revenues fell 6 percent year-on-year to KRW 3.33 trillion, as smartphone shipments dropped 1 percent over the same period to 13.9 million. LG said it generated some KRW 150 billion in operating losses due to the increased marketing expense for the launch of its flagship G5, but the phone has to date sold less than hoped. The company posted a drop in handset sales both in its home market Korea and in North America in Q1, but said mass-market phones from the K/X series increased.
LG said it expects a "challenging" Q3 due to the weak performance of the G5 and rivals launching new flagship products. It aims to recover revenue by launching the next V Series and expanding sales of mass-tier models such as the K/X series. It also pledged to "strongly implement profitability improvement activities".
The company's home entertainment division did somewhat better in Q2, with the operating margin rising to 8.6 percent from a loss of 2.1 percent a year ago, and sales up slightly to KRW 4.16 trillion. LG said it saw some slowdown in the market compared to Q1, especially in emerging markets in the MEA region and Asia, the Americas were still growing. It expects solid profitability to continue thanks to growing share of premium products in the TV market, but said volatile panel prices could have a negative impact.
Overall, LG expects volatile raw materials prices in the near term, as well as continued weak global consumption due to market uncertainties such as Brexit. The company aims to focus on bolstering the premium image of its brand, enhance its cost structure in order to deal with the fluctuating materials prices and develop B2B channels more as a growth engine. Revenues are expected to remain flat, while operating margins should improve in the rest of the year.
