LG Electronics Suffering From Poor Smartphone Sales
South Korean electronics business, LG Electronics, is suffering from three sources of pain at the moment. Firstly, the champion smartphone business is struggling with a slowdown in sales, which for LG is a combination of intense competition from rival companies and an effect of more key markets reaching saturation. The second factor hurting LG is that of an averse movement in foreign exchange rates, which has seen the average won-dollar exchange rate in the third quarter down 3.6% to 1,121 won to the dollar, meaning LG Electronics’ sales are worth on average 3.6% less. The third impact is that the end of the year is traditionally the slow season for LG’s successful household appliance business, which traditionally performs strongly in the first half of the year when mobile electronics sales are weaker. Currently, the business has enjoyed growing operating profits for the last year but this has now been halted. Looking forwards to the fourth quarter, LG Electronics is relying on positive results from the LG Signature, OLED TV and GM Volt electric vehicle divisions to outline the annual performance.
It’s LG’s mobile smartphone business that is having the greatest effect on the business. LG’s Mobile Communications division, or MC, has recorded steepening loss in the third quarter of the year and the company is blaming the failure of the LG G5 smartphone in the first half of the year. The LG G5 was released around the same time as the Samsung Galaxy S7 and whilst it offers customers a number of potentially innovative features, such as a dual camera set up (something Apple has adopted for the iPhone 7 Plus), a replaceable battery and the ability to add in extra hardware modules (something Motorola is trying with the Moto Z), the device has failed to interest and excite customers in the same way the Samsung Galaxy S7 and Galaxy S7 Edge have. This written, whilst sales of the LG G5 are disappointing so too have LG’s other smartphone ranges – a company will often rely on its headline flagship device to interest potential customers, who may baulk at the size or cost of the flagship and opt for a less expensive, smaller, mid-range device. This does not appear to have happened with LG. Going forwards, LG’s arch rival, Samsung, is struggling with the Samsung Galaxy Note 7 suffering from a reputation-damaging exploding battery problem. Now must surely be the time for LG to capitalize on Samsung’s weakness and LG have recently released the LG V20, but the business is still struggling to increase sales. The company believes that this is because unlike the more generic flagship LG G5, the LG V20 is more of a niche product. LG need to pick up their game here.
The decline in sales of LG’s television sets and home appliances is very much in line with expectations for the second half of the year. The average price for LCD television panels has increased by 10% over the year to date, which LG believe will has helped compensate for slower sales, but despite this, the estimated operating profit of LG’s home appliance and air division in the third quarter is around 330 billion won ($297 million), down from 430 billion won ($387 million) in the second quarter. The television division dropped estimated profits to 200 billion won ($180 million), down from 300 billion won ($270 million) in the previous quarter.
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