LG Electronics’ sluggish smartphone sales are dragging down growth potential of other parts sister firms, including LG Display and LG Innotek, NICE Investors Service, one of the nation’s three credit rating agencies, said in a recent report.
According to the agency, LG Electronics
made up the largest 59 percent of LG
Group’s electronics-related revenue, followed by LG Display
(33 percent), LG Innotek
(7 percent) and LG Siltron (1 percent).
“The earnings of electronics and parts businesses are pretty volatile. Investors need to take a look at risk factors of LG Group companies,” the agency said.
LG Electronics’ mobile chief and CEO Cho Juno unveils the company’s bigger-screen flagship smartphone LG V20 early this month.
“LG’s sluggish smartphones business, coupled with uncertainties in TV profits, is a structural problem that could be prolonged.”
NICE pointed that LG has yet to gain a firm footing in the premium smartphone market at a time when the whole market is fast being saturated.
“It wouldn’t be easy for the company to further elevate its brand name in the market,” the agency said.
The mobile business division has posted an operating loss since the second quarter last year.
Skepticism is also prevalent about the division’s ongoing restructuring with no immediate breakthrough seen.
Its leadership in organic light-emitting diode TV has also yet to be led to profitability.
“Samsung Electronics, the world’s largest TV maker, is still sticking to upgrading liquid-crystal display technology due to the low marketability of expansive OLED TVs,” NICE said, calling a strategic shift unavoidable for LG Display.
Amid enhanced competition with Chinese display makers, LG Display is seeing less profits on LCDs, pouring more resources into OLEDs for smartphones where its compatriot rival Samsung Display dominates more than 90 percent of the market share.
LG Display, which has poured 3 trillion won (US$2.70 billion) into its sixth-generation OLED production plant, plans to inject an additional 10 trillion won to build a new plant exclusively for OLED displays for smartphones in Paju, Gyeonggi Province.
“Its OLED TV production continues to lose money, while investments are being poured into smaller OLEDs for smartphones,” the agency said. “But in the longer term, potential price hikes in LCD panels will help improve profits and secure cash for new investments.”
LG Innotek, the parts supplier, is also struggling from LG’s sluggish smartphone business.
“Even though it is improving profits as it supplies camera modules to a new overseas client (Apple) in the latter half, the company’s overall profitability is slowing due to sluggish sales of its key client LG Electronics,” the agency said.
By Lee Ji-yoon (email@example.com