Sangyun Han
LG Electronics' Q2 2007 results: driven by GSM and WCDMA handsets
Yesterday, LG Electronics (LG) announced its Q2 2007 results. Total revenues increased 12.6% year-on-year to KRW 10.43 trillion ($11.39 billion), due to good results in both the Digital Appliance and Mobile Communications divisions. Operating profit was up slightly to KRW 0.46 trillion, an increase of 1.1%. The Handset sector of the Mobile Communication division recorded the greatest growth, experiencing rapid year on year growth of 26.9% to reach KRW 2.7 trillion. It also improved its operating profit margin to 11.6%, compared to 4.7% in Q1 2007 and -0.7% in Q2 2006. LG recorded total handset shipments of 19.1 million units in Q2 2007, up 24.8% on Q2 2006. Comment: The most important contributor to LG's total revenues is the Digital Appliance division, contributing 34% of the total. However, the handset sector of LG's Mobile Communication division achieved the highest growth due to the following factors: - its GSM and WCDMA handset portfolios have improved as its traditional CDMA focus declines. - handset shipments to emerging markets have increased. In particular, LG reported a large increase of shipments to Central & South America and Asia (including China) of 64% and 44% respectively. - it has improved profitability through impressive performance of its mid- and high-end handsets, such as the Chocolate ,Shine and Prada phones. These have increased the average selling price (ASP) in Q2 to $155 and have also positively impacted LG's brand perception in GSM markets. This is impressive, given LG's focus on emerging markets, which increases the risk of ASP erosion. - LG's internal innovation programme for improving performance, through cost reduction; boosting marketing; and sales capabilities, has also made an impact.Moving forward, a point of concern for LG is the risk of declining ASPs as it continues to focus on emerging markets. However, we believe that the threat will be offset by the potential economies of scale. Most importantly we believe that it is important for LG's profitability for it to increase its presence in the high-end and premium markets. The key for success will be to create the next 10 million selling handset as a follow-up to the Chocolate phone.
