LG Electronics Inc, the world's fourth-largest maker of mobile phones, posted a 70 percent drop in quarterly profit as competition from Nokia Oyj and other companies drove LG's handset business to its first loss.
Second-quarter net income fell to 151 billion won (US$145 million) from 493 billion won a year earlier, the company said yesterday in a regulatory filing. Operating profit fell 63 percent to a lower-than-expected 144 billion won and revenue dropped 7 percent to 5.6 trillion won.
LG forecasts the "difficult" business environment will continue in the current quarter, underscoring how the company is being forced to cut prices to keep up with Nokia, Motorola Inc, and other mobile-phone makers in a slowing industry.
Samsung Electronics Co, the world's third-largest handset vendor, last week reported operating profit from telecommunications declined 33 percent to 530 billion won, missing analysts' estimates of 630 billion won, while Sony Ericsson Mobile Communications Ltd last Friday posted a 19 percent drop in second-quarter profit as it introduced lower-priced handsets to win customers.
"Due to intensifying competition in the handset market and price decline of display products, the difficult business environment is likely to persist," LG said in its press release.
The operating loss from mobile phones, the first since the company was reorganized in 2002, was 4 billion won, compared with a profit of 123 billion won a year earlier. Including network equipment, the telecommunications division's second-quarter operating profit plunged 94 percent to 8.4 billion won, LG said.
Mobile phone sales fell 5.2 percent to 1.8 trillion won, or 12.1 million units, the company said. The company missed its mobile phone shipment target for a second consecutive quarter.
The company's display business, including sales of plasma display panels, posted a 22 billion won loss and sales fell 2.3 percent to 1.2 trillion won.
"The tougher competition seems to have caught up with the company, and negative handset margins with slower sales is going to weigh on the shares," said Kim Kyeong-seob, who helps oversee the equivalent of US$675 million at KB Asset Management Co in Seoul.
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