LG: Selling a Lot, But Not Earning Anything

SEOUL, July 30 (Korea Bizwire) – The second quarter report from LG’s MC headquarters (in charge of smartphones) has been revealed. MC headquarters were said to be responsible for bringing down the stock price of LG Electronics.

Cutting to the chase, it was a broke trade, where they sold a lot but didn’t get much in return. Business profits only reached 200 million won. LG avoided the worst case, turning back to deficit after 5 quarters, but it seems like the falling profits are here to stay for a while.

LG Electronics announced that second quarter sales were 3.65 trillion won, which was a slight increase compared to the second quarter last year (3.63 trillion won). Smartphone sales were not bad either. The company sold 14.1 million phones during the second quarter, which didn’t differ much from the 14.5 million sold in the second quarter last year. Of particular note, sales of LTE smartphones reached 8.1 million, recording an all time high.

However, business profits were a problem.

Profits tumbled from 86.7 billion won in the second quarter of 2014, to 200 million won, representing a 0.0 percent business profit rate. The numbers are saying that even after selling over 10 million smartphones during the past three months, nothing much was left.

The direct cause for this matter was an increase in marketing costs and intensified price competition.

LG Electronics spent more on marketing compared to the previous model when they released their strategic G4 smartphone in April. The reasons were obvious.

In order to get a leg up on their competitor, the Samsung Galaxy S6, LG launched the G4 a month in advance. This resulted in more marketing costs compared to the G3, which was launched last year. Also, the continuing popularity of the iPhone 6 also contributed to the increased marketing costs.

In addition, the global market is now in price competition due to the appearance of Chinese manufacturers like Xiaomi. Many manufacturers selling smartphones with the same features at lower price points appeared, aggravating the sales of LG Electronics in the affordable market.

However, the overuse of marketing costs in the second quarter can be evened out in the third quarter, and global cost competition has always been an issue in the market. The fundamental problem for LG Electronics lies somewhere else.

The reason for MC headquarters’ ‘self-mate’ situation lies in its failure to diversify its premium smartphone lineup. Other than the smartphone G series LG has been releasing annually in the first half of the year, they do not have a fixed premium lineup.

‘G Pro’, the large screen phone that was released in February 2013, is expected to be on the chopping block after its follow up product, the ‘G Pro 2′, was released last year.

‘G Plex’, the first phone to have a curved screen, also seems to be on its way out after the ‘G Plex 2′, which was released in January this year. It was the first product since Jo Joon-ho, the new head of MC headquarters, was sworn in, but didn’t have any outcome in particular except the North American market.

In contrast, Samsung Electronics successfully fixed its premium line up from the Galaxy S to the Galaxy Note, and is defending itself well against global competition. Samsung is also making attempts to add the ‘Edge’ model and ‘Edge Plus’ model with a bigger screen to the annual line up.

Now, LG is planning to launch a new ‘Super Premium Smartphone’ in the third quarter, and is hoping it will be a success, so that it can be the fixed premium model to be launched in the latter half of each year.

This new model that Jo Joon-ho mentioned at the Mobile World Congress (MWC) in March will have high tech, cutting edge material and features, and will hold the future of LG’s smartphone business.

Officials from LG Electronics say that the disappointing sales will continue for a while, but show some positive attitude towards future sales. “Since the G4 was released globally in June, we are anticipating numbers derived from the sales of G4 in the third quarter.”

By Francine Jung (francine.jung@kobizmedia.co.kr)