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Analysts cut Q2 profit forecasts as the LG G4 under performs

Securities companies have lowered their Q2 profit forecasts for LG, as sales performance of the flagship LG G4 is likely to be lower than expected.

Published onJune 23, 2015

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The LG G4 may be an excellent flagship smartphone, but it seems that industry observers are a little concerned about how many units LG will be able to sell. Various analytic and security firms have downgraded their second quarter profit forecasts for LG as sales of its latest flagship may be lower than initially thought.

At launch, the LG G4 had been expected to sell eight million units in 2015, meaning that around 2.6 million G4s would need to be sold in each remaining quarter of the year. However, second quarter shipments are expected to come in at less than 2.5 million units for Q2, meaning that actual sales will be even lower than that. This is a rather poor result for the flagship’s first quarter on the market. Last year’s LG G3 sold 5.9 million units in its first year and LG was hoping to beat this target by 20 at least percent.

There are several possible reasons as to why LG G4 sales may be lower than initially expected. Pricing could be a factor, as could the lack of major differences from last year’s G3. It’s also possible that LG’s promise of another higher-end flagship later this year has resulting in potential customers deferring their purchases.

In addition to under performing sales, LG has also seen its marketing expenditure increase this quarter. The company has been pushing the G4 as a serious competitor to the Galaxy S6 and Apple’s iPhone, but this additional advertising is going to come at the expense of some profits. Combined with lower than expected sales, we can begin to see where the analysts are coming from.

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Perhaps there wasn’t a large enough difference between the G3 and G4 to drive early sales?

In terms of figures, Daishin Securities and Korea Investment & Securities have lowered their forecasts for LG’s Mobile Communications Division to 56 billion won ($50.7 million) and 68 billion won ($61 million) from 102 billion won ($92.3 million) and 115 billion won ($104 million) respectively. NH Investment & Securities has dropped its expectations to 64 billion won (US$58 million) from 95 billion won (US$86 million) as well.

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The consensus seems to be that LG’s operating profit will fall somewhere in the region of 60 – 65 billion won, which would be a decline from its first quarter profit of 73 billion won (US$66 million) and Q4 2014 profit of 86 billion won (US$78 million).

However, this isn’t to say that LG’s entire smartphone business is performing poorly. Just yesterday LG said that it would invest a substantial $155 million into India and could even set up production there if the company gains enough market share.

Instead, it looks like LG is suffering from some form of slowdown in its high-end market. Any ideas why?

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