Technolgy Rules: LG retains confidence in its mobile business despite continued losses

Thursday, October 25, 2018

LG retains confidence in its mobile business despite continued losses

LG remains confident that it can turn the corner for its serially unprofitable mobile business despite the division racking up a loss of over $400 million this year so far.

The Korean company as a whole is having a good year. Following a record six months of profit and revenue in the first half of 2018, the group saw Q3 revenue jump 2.7 percent sequentially to reach 15.43 trillion KRW, or $13.76 billion. Operating profit rose by 45 percent year-on-year to reach 748.8 billion KRW, that’s $667.7 million.

The company’s home entertainment business is the standout performer generating total sales of 3.71 trillion RKW ($3.31 billion) and a 325.1 billion KRW ($289.9 million) profit, with LG Mobile second in terms of revenue. But, the mobile division continues to bleed cash. This time around in Q3, its losses were 146.3 billion RKW, that’s $130.5 million.

That betters large losses for Q3 2016 and 2017 — 436.4 billion KRW and 436.4 billion KRW, respectively — but it means that LG’s mobile division has lost the company $410 million in 2018 so far. But, as the chart below shows, LG has a long way to go before its mobile business stops hurting the group’s overall bottom line and restricting its otherwise impressive growth as a company.

The company played up its performance with a claim that it had weathered challenging global markets — where Chinese brands are competing hard and mobile saturation is weakening consumer demand — by “significantly reduced its operating deficit as a direct result of its business plan and its stronger focus on mid-range products.”

LG recently outed its new V40 ThinQ, a flagship smartphone that packs no fewer than five cameras, and it is optimistic that its launch will boost sales in the final quarter of the year. More widely, it said that the cost-cutting strategy implemented with the appointment of new LG Mobile CEO Hwang Jeong-hwan last November will see it continue to “consolidate and implement a more profitable foundation.”

That strategy has focused around mid-range devices and emerging markets, where LG believes it can offer strong value for money that’ll appeal to consumers in the market for a deal. That explains why mobile division sales are down this year but, crucially, the division is bleeding less capital. Whilst that strategy has helped stem losses, it remains to be seen whether it is the right one to turn the unit profitable.