LG Electronics had a very strong mobile showing at the end of last year. There are two major reasons for this and they’re both phones we’re all familiar with by now. The in-stock out-of-stock Nexus 4 has been among the biggest hits of this winter. In addition, the Optimus G has been getting released everywhere. Despite these strong showings, LG Electronics posted a $429 million loss in Q4.
It’s hard to believe that a company could post such big losses after having such a successful quarter. According to The Next Web’s Jon Russell, LG had $2.58 billion in mobile sales. While that isn’t as big as some competitors, that’s still quite a bit of money. All in all, LG made $12.37 billion in revenue and had only $98 million in operating costs. So what happened?
The European Union happened. Apparently from 1996 to 2006, LG restricted the prices on CRT TVs and computer monitors. That’s a big no no and the European Union fined them for it. The total of the fine was a whopping $1.92 billion. Despite trying to get that overturned, it appears LG won’t be able to avoid the fine.
In the short term, it means that despite having their best mobile sales in a long time, they’re still posting a loss. While it’s depressing to read, it might not be too bad for LG in the long run. Their Nexus 4 is still among the hottest devices out right now and the Optimus G is still being released across the world. So their mobile division should still be pulling in decent profits.
The big question is if LG can remain on an upward trend in the mobile industry. With a new iPhone probably in the works, a slew of big name Android phones coming out, and the release of Blackberry 10, the mobile pool is getting crowded again. So LG can only ride on the success of the Nexus 4 and Optimus G for so long. It’ll be interesting to see how 2013 plays out.
Despite the loss in Q4, LG reported an overall yearly profit of $80.75 million. So at least they came out in the green for 2012. Will 2013 see LG continue to do well?
Fourth quarter 2012 consolidated revenues were KRW 13.50 trillion (USD 12.37 billion) with an operating profit of KRW 107 billion (USD 98.08 million). Unaudited consolidated financial results for the fourth quarter ending Dec. 31, 2012 showed a net loss of KRW 468 billion (USD 428.96 million) which reflects a fine related to alleged cathode-ray tube pricing issues imposed by the European Commission in December.
The LG Home Entertainment Company reported record sales of flat-panel TVs with 9.3 million units in the fourth quarter resulting in a 17.4 percent revenue increase quarter-on-quarter to KRW 6.44 trillion (USD 5.91 billion) and full-year operating profit of KRW 542 billion (USD 480.92 million). Revenues from 3D and Smart TVs increased with higher unit sales in the United States, Europe and CIS countries. Although the Home Entertainment Company had the strongest quarter of the year in terms of revenue, profitability declined somewhat due to lower average selling prices and increased competition. LG will continue to aggressively market 3D and Smart TVs and plans to expand its share of the premium TV segment in 2013 with Ultra HD TVs and OLED TVs.
The LG Mobile Communications Company reported a 7 percent unit increase quarter-on-quarter in mobile handset shipments to 15.4 million with more than half of the units coming from smartphones. Smartphone shipments grew 23 percent compared to the previous quarter, increasing to 8.6 million devices from the 7 million in the third quarter. Fourth quarter revenues were the highest of the year, growing 15 percent to KRW 2.81 trillion (USD 2.58 billion) quarter-on-quarter. Sales of premium LTE smartphones such as Optimus G and Vu:2 increased in the fourth quarter, as did the L-series and Google Nexus 4. With more European and emerging markets introducing LTE services this year, LG plans to increase smartphone revenues and market share by launching follow-up devices to Optimus G and the L-series as well as the new F-series.
The LG Home Appliance Company posted almost flat revenues year-on-year, with sales of KRW 2.94 trillion (USD 2.7 billion) in the fourth quarter as strong sales in the U.S. and CIS countries were largely offset by sluggish demand in Europe, the Middle East and Latin America. Profitability was affected by unfavorable foreign exchange ratesand increased marketing investments, even though average selling prices for home appliance products rose in the fourth quarter. The company plans to improve its revenue and profitability in 2013 with more competitive products, advanced technologies and a stronger focus on profitable regions.
The LG Air Conditioning & Energy Solutions Companyreported sales of KRW 683 billion (USD 626 million) in the fourth quarter, essentially unchanged year-on-year. An operating loss of KRW 11 billion (USD 10.08 million) in the quarter showed improvement from the same period last year due to operational efficiencies. For full-year 2012, the company recorded revenues of KRW 4.35 trillion (USD 3.86 billion) and operating profit of KRW 156 billion (USD 138.42 million). The priority in 2013 will be to introduce more energy-efficient and localized products to bolster revenue growth.
2013 Business Direction
For 2012, LG Electronics is targeting a revenue goal of KRW 53.5 trillion with plans to spend KRW 2.5 trillion in capital expenditures.
2012 4Q Exchange Rates Explained
Starting from the fourth quarter of 2012, the Company has modified its disclosure of operating profit or loss in accordance with the newly issued Amendments to Korea-International Financial Reporting Standards (K-IFRS) 1001 “Presentation of Financial Statements.” Due to this change, the Company has also reclassified comparative financial data in accordance with the new disclosure requirement. Amounts in Korean won (KRW) are converted into U.S. dollars (USD) at the average rate of the three month period in each corresponding quarter: KRW 1,091 per USD (2012 4Q) and KRW 1,146 per USD (2011 4Q). Average rate of the twelve-month period in 2012was KRW 1,127 per USD.
Earnings Conference and Conference Call
LG Electronics will hold a Korean-language earnings news conference on Jan. 30, 2013 at 16:30 Korea Standard Time at the LG Twin Tower Auditorium (B1 East Tower, 20 Yeouido-dong, Yeongdeungpo-gu, Seoul, Korea). An English language conference call will follow on Jan. 31, 2013 at 10:00 Korea Standard Time (01:00 GMT/UTC). Participants are instructed to call +82 31 810 3069 and enter the passcode 9084#. The corresponding presentation file will be available for download at the LG Electronics website (www.lg.com/global/ir/reports/earning-release.jsp) at 13:00 on Jan. 30, 2013. Please visit http://pin.teletogether.com/eng/ and pre-register with the passcode provided. For those unable to participate, an audio recording of the news conference will be available for a period of 30 days after the conclusion of the call. To access the recording, dial +82 31 931 3100 and enter the passcode 142680# when prompted.