World No.2 TV maker LG Electronics warned that profits at its struggling mobile division would be slow to recover, but it expects this summer's soccer World Cup to drive TV sales and push up next quarter's earnings.
LG <066570.KS>, also the world's No.3 handset maker, has seen its mobile phone business suffer this year, trailing Nokia and Samsung Electronics Co Ltd <005930.KS>. It competes with Sony Corp <6758.T> and Panasonic Corp <6752.T> in flat-screen TVs.
Chief Financial Officer David Jung told analysts that turning LG's mobile business around was top priority and it planned to introduce competitive models from this quarter, though it would take a bit more time to really improve profitability.
Its appliance and TV businesses are performing strongly and LG's mobile phone margin has likely hit a bottom, said Kim Ji-san, an analyst at Kiwoom Securities.
LG's TV division swung to a profit in the first quarter and accounted for nearly 40 percent of the group total, while earnings from handset sales tumbled to around a tenth of year-ago levels and accounted for less than 1 percent of total profit.
Overall demand for home appliances is strong and we expect solid results to continue toward the end of this year... and our TV business may also perform better than the market expects, Jung said.
The long-term outlook for LG hinges largely on when and how strongly its handset division regains lost momentum.
CEO Nam Yong, who sought $2.7 billion in cost savings last year, said in a recent interview that only companies which win the smartphone war would survive for the next 10 years in the fast changing technology industry, underscoring his desire to reshape LG's struggling smartphone business.
LG, which aims to increase handset sales by 19 percent to 140 million units, said its second-quarter shipments would rise 10-20 percent from the previous quarter.
Mobile phone sales dropped to 27.1 million units in January-March from the fourth-quarter's 34 million, and profit margins slumped to 0.9 percent from 6.4 percent a year ago, though they picked up from just 0.2 percent in the fourth quarter.
LG's business lost momentum late last year when its handset unit struggled with delayed product launches, a lack of hit models and the firm's slow response to the smartphone boom. LG has less than 1 percent of that global market.
Analysts are mixed over whether LG can re-energize its mobile business. It plans to boost marketing to drive shipments, but the competition is only getting tougher as more firms join the smartphone race.
LG has shifted focus to smartphones to boost razor-thin margins and catch bigger rivals such as Apple Inc .
It's hard to foresee a strong recovery in the handset segment this year ... a risk LG Electronics must watch out for is competition as Apple is looking to enter other segments, said Kim Kap-ho, an analyst at LIG Investment.
The maker of Infinia and Xcanvas TVs expects TV sales to remain strong this quarter ahead of the World Cup and increased shipments of high-end models such as LED-backlit LCD TVs.
LG's TV business is set to overtake handsets as a main growth driver this year, but soaring component costs and a stronger won currency could crimp earnings, while Japanese rivals Sharp and Sony are fighting back to regain lost market share.
Sharp Corp <6753.T> on Tuesday forecast its annual operating profit would more than double this year to its highest in three years.
LG said January-March operating profit including earnings from overseas units rose 4.7 percent to 489 billion won ($440.5 million), broadly matching a consensus forecast.
Ahead of the results, LG was forecast to report a 2.7 trillion won global operating profit for 2010. (Additional reporting by Rhee So-eui; Editing by Valerie Lee and Ian Geoghegan)