SEOUL (Reuters) - LG Electronics Inc (066570.KS) increased quarterly earnings by 84 percent with strong results in mobile phones and at its LCD joint venture, but the South Korean firm faces a tougher second half amid a global economic downturn.
LG predicted revenues would dip in the third quarter as cash-strapped consumers spend less on high-end gadgets, and its chief financial officer warned the global slowdown could last up to 18 months.
"We are cautious about the outlook for the second half," said CFO David Jung. "We have seen the impact of the slowdown on our orders since June."
LG shares, valued at more than 16 billion, closed 4.1 percent higher at 113,500 won after jumping almost 7 percent before the earnings announcement. The broader market (.KS11) rose 3.5 percent.
Many analysts said the April-June quarter would represent a peak for the year. LGs quarterly net profit was a record but came in below analysts forecasts due to losses related to foreign exchange debt and higher taxes.
"There are several risks in the second half of the year to 2009, which are the global downturn of the mobile phone market and the weakening display market due to a supply glut," said Jason Kang, analyst at Daewoo Securities.
LG, the worlds fourth-largest mobile maker after Nokia (NOK1V.HE), Samsung Electronics (005930.KS) and Motorola (MOT.N), said it expected mobile phone margins and sales to dip in the third quarter, although margins should remain above 10 percent, after hitting a record 14.4 percent in April-June.
LG sold a record 27.7 million phones in April-June, versus 24.4 million in January-March.
"If (Apples (AAPL.O)) iPhone sells more than expected, LG Electronics is going to face a situation where it will have to cut its high-end cellphone prices," Park said.
Smaller mobile rival Sony Ericsson (6758.T) (ERICb.ST) on Friday posted a small quarterly operating loss, hit by a fall in demand for its more expensive phones, but Nokia slightly raised its sectoral forecast, saying volume would grow 10 percent or more this year, easing fears that the economic slowdown was hitting phone demand.
LGs April-June net profit rose to 707 billion won (696.5 million) from 385 billion won a year ago, but was below a forecast for 802 billion won by 10 analysts surveyed by Reuters.
Operating profit on a global basis climbed to a record 856 billion won from 464 billion won, slightly beating expectations.
Quarterly revenue rose 22 percent to 12.7 trillion won.
LG, which owns 38 percent of LG Display Co Ltd (034220.KS), benefited from another banner quarter at the worlds No.2 liquid crystal display (LCD) maker, which more than trebled quarterly net profit from a year ago on strong demand for flat-screen panels for TVs and computer monitors.
But the company said flat panel prices were set to fall this quarter with the LCD market in oversupply.
"LG Electronics is the largest shareholder in LG Display, and a gloomy outlook for the display industry is making prospects much weaker," said John Park, an analyst at Daishin Securities.
LGs display division, which makes plasma panels and TV sets, posted a 1 percent profit margin on a global basis after suffering heavy losses for most of the past year.
Despite concerns about the second half, LG is expected to put in a strong performance for the whole year, thanks to a weaker won currency that makes its exports more competitive.
Full-year net profit is forecast to more than double to 2.53 trillion won, according to Reuters Estimates.
(Additional reporting by Miyoung Kim, Angela Moon and Park Ju-min, editing by Ian Geoghegan)
(1=1015.1 Won)
LG predicted revenues would dip in the third quarter as cash-strapped consumers spend less on high-end gadgets, and its chief financial officer warned the global slowdown could last up to 18 months.
"We are cautious about the outlook for the second half," said CFO David Jung. "We have seen the impact of the slowdown on our orders since June."
LG shares, valued at more than 16 billion, closed 4.1 percent higher at 113,500 won after jumping almost 7 percent before the earnings announcement. The broader market (.KS11) rose 3.5 percent.
Many analysts said the April-June quarter would represent a peak for the year. LGs quarterly net profit was a record but came in below analysts forecasts due to losses related to foreign exchange debt and higher taxes.
"There are several risks in the second half of the year to 2009, which are the global downturn of the mobile phone market and the weakening display market due to a supply glut," said Jason Kang, analyst at Daewoo Securities.
LG, the worlds fourth-largest mobile maker after Nokia (NOK1V.HE), Samsung Electronics (005930.KS) and Motorola (MOT.N), said it expected mobile phone margins and sales to dip in the third quarter, although margins should remain above 10 percent, after hitting a record 14.4 percent in April-June.
LG sold a record 27.7 million phones in April-June, versus 24.4 million in January-March.
"If (Apples (AAPL.O)) iPhone sells more than expected, LG Electronics is going to face a situation where it will have to cut its high-end cellphone prices," Park said.
Smaller mobile rival Sony Ericsson (6758.T) (ERICb.ST) on Friday posted a small quarterly operating loss, hit by a fall in demand for its more expensive phones, but Nokia slightly raised its sectoral forecast, saying volume would grow 10 percent or more this year, easing fears that the economic slowdown was hitting phone demand.
LGs April-June net profit rose to 707 billion won (696.5 million) from 385 billion won a year ago, but was below a forecast for 802 billion won by 10 analysts surveyed by Reuters.
Operating profit on a global basis climbed to a record 856 billion won from 464 billion won, slightly beating expectations.
Quarterly revenue rose 22 percent to 12.7 trillion won.
LG, which owns 38 percent of LG Display Co Ltd (034220.KS), benefited from another banner quarter at the worlds No.2 liquid crystal display (LCD) maker, which more than trebled quarterly net profit from a year ago on strong demand for flat-screen panels for TVs and computer monitors.
But the company said flat panel prices were set to fall this quarter with the LCD market in oversupply.
"LG Electronics is the largest shareholder in LG Display, and a gloomy outlook for the display industry is making prospects much weaker," said John Park, an analyst at Daishin Securities.
LGs display division, which makes plasma panels and TV sets, posted a 1 percent profit margin on a global basis after suffering heavy losses for most of the past year.
Despite concerns about the second half, LG is expected to put in a strong performance for the whole year, thanks to a weaker won currency that makes its exports more competitive.
Full-year net profit is forecast to more than double to 2.53 trillion won, according to Reuters Estimates.
(Additional reporting by Miyoung Kim, Angela Moon and Park Ju-min, editing by Ian Geoghegan)
(1=1015.1 Won)
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