LG Electronics Struggle to Make Profits
LG Electronics Struggle to Make Profits
  • By Oh Hae-young (info@koreaittimes.com)
  • 승인 2015.06.30 22:39
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South Korea’s second largest smartphone and home appliances maker LG Electronics is seeing its stock price continually tumbling with the weakening profits.

Industry watchers say the electronics giant may continue to struggle in the second half of this year if they are not able to find new growth engine.

Shares of LG Electronics dropped 4.84 percent on Monday from the previous day to close at 47,150 won. This is the lowest figure since June in 2003 when the figure hit 46,400 won. The market value also dropped to 7.7 trillion won, down by 1.5 trillion won from the previous month.

The company's sales in the first quarter of this year stood at 13.9 trillion won, which is similar figure to last year but its operating profit dropped by 36.2 percent to 305.2 billion won. Its net income dropped to 38.4 billion won from 92.6 billion won during the same period.

A run of analysts are revising down the target share price of LG Electronics in the later half of this year, pointing the sluggish sales of the firm’s flagship products smartphones and televisions. While the firm is lagging behind its rivals at home and abroad, it could not yet find new breakthrough for the new cash cow. In the meanwhile, high-end product maker Apple is firming its position and other new emerging companies such as Huawei and Xiaomi are fast penetrating into the market.

“In China, India and Indonesia which account for 40 percent of global smartphone demand, the market shares of local smartphone makers producing budget and low-end phones are rising. Even in the premium market, it is also behind Apple and Samsung Electronics,” said Noh Geun-chang, a researcher at HMC Investment and Securities.

The global environment is also unfavorable to the company. “The weakening currency market in emerging nations is affecting the profitability of the company, which sells more in emerging nations than in advanced nations,” said Kim Yang-jae, a researcher at KTB Investment Securities.

Even though the sales of large-sized television continues to rise, the company still struggles from profitability due to the weak currency of emerging nations including the East Europe, CIS and South America.

Analysts predicted that the sales figure of the second half of this year would be no better.

“The operating profits of the second half of this year would drop 44.3 percent from last year due to the emergence of new home appliance makers in emerging nations,” said Kim Yang-jae, a researcher at KTB Investment and Securities.

“As for Xiaomi, it already expanded its business into wearable devices and home appliances. China’s number one television maker Skyworth also made forays into the home appliances market. There is yet no factor to increase stock price of LG Electronics for the time being,” he added.

According to Daishin Investment and Securities, the operating profit of LG Electronics is expected to hit 329 billion won, a 46 percent drop from the same period of last year. Most analysts predicted that the sales figure may rise a little to 60.4 trillion won but its operating profit would drop 19.5 percent to 1.47 trillion won.

“The dropping to less than 8 trillion won reflects serious situation of the company but the group doesn’t seem to make any turning point to overcome the situation. If they are not able to bring investors’ mind back by announcing new lineup or present master plan in the earning briefing next month, the stock price may go down further,” said an analyst declining to be identified.

Amid the sluggish profits, LG Electronics is poised to give a boost to the company by partnering with global companies. It recently signed a deal with Google to push a joint marketing of its OLED television. Through Google's diverse digital marketing platforms including search engine and YouTube, it aims to target around 100 million potential high-end clients, according to analysts. The local giant also recently installed its OLED TV at Ayasofia, a museum in Istanbul, Turkey and a premium resort in North America.

"Even though the sales of OLED TV does not greatly affect the profits now, it has a significant meaning in the long term. We are noting that the OLED TV market is growing every year. When Chinese companies including SkyWorth and Hisense join the sales of OLED TV in the second half of this year, the market will open in earnest," LG Electronics' official said.

The company is also expecting on its super premium phone to be launched in the second half. Though it isn't yet unveiled, it is expected to be equipped with dual camera, which can realize three-dimensional image.

"If their new products can become a sensation in the market and its family models are well received in the global market, the company's sluggish stock price can see a rally," an analyst said.


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