South Korea's LG Electronics Inc beat expectations with a record second-quarter profit and is set to outperform its peers this year thanks to a weak local currency and a strong lineup of mobile phones, TVs and appliances.

Although the results were better than expected, the world's No.3 phone maker cautioned that third-quarter mobile margins could slip, and analysts also voiced concerns about the economic outlook and rising competition.

The second quarter is usually the peak season for LG, said Choi Hyun-jae, an analyst at Tong Yang Securities. Global economic risks remain and fierce marketing competition among new products could also result in price reductions.

But new premium products such as the multimedia touch screen phone ARENA, plus steady sales of mid-range phones are helping LG expand market share in mobile phones despite the current downturn.

LG, the No.3 globally in liquid crystal displays (LCD), is also benefiting from strong sales of flat-screen TVs and improving earnings at affiliate LG Display Co Ltd.

LG Electronics expects sales to grow over 10 percent year-on-year (in the third quarter) as demand for LCD TVs and mobile phones continues to expand, with profitability comparable to last year's level, LG said in a statement on Wednesday.

LG shares fell 1.9 percent against a flat broader market as the strong results had been largely priced in. The stock has risen about 76 percent so far this year, outperforming the broader market's 32 percent gain.

PHONE MARGINS

LG, which trails Nokia Oyj and Samsung Electronics Co Ltd in mobile phones, sold a record 29.8 million handsets in the second quarter, up from 22.6 million units in January-March.

LG posted an 11 percent operating profit margin in handsets, compared with 6.7 percent posted in the first quarter, a figure Choi said was pretty remarkable.

Last week, Nokia downgraded its expectations for second-half underlying operating margin to the first-half level of 11.3 percent, compared with expectations of 17.4 percent. Nokia also slashed market share forecasts, and analysts say increasingly aggressive price competition from Samsung and LG is hurting the world's top cellphone maker.

World No. 5 maker Sony Ericsson is also braced for a tough second half of 2009 as a demand slump hits its stronghold mid-range products focused on camera and music features.

Samsung posts earnings on Friday and indicated earlier this its profits would be above expectations.

62 PERCENT JUMP IN NET

LG's global-basis operating profit, which includes foreign affiliates, was a record 1.13 trillion won ($903 million) for April-June, soundly beating a 988 billion won average profit forecast from nine analysts polled by Reuters.

That was up 32 percent from an 856 billion won profit a year earlier and compares with a 456 billion won profit in the first quarter.

LG's second-quarter net profit of 1.15 trillion won was also much bigger than a 707 billion won profit in the year-ago period, and marked a strong turnaround from the 198 billion net loss in the previous quarter.

Its global-basis sales were 14.5 trillion won, in line with forecasts.

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