LG Electronics signaled a bottom for its money-losing mobile phones and TV businesses, after the world's No.2 TV brand reported a record quarterly loss.
Founding family scion Koo Bon-joon, who took over as the CEO in October, is betting on turning around the South Korean company's fortunes with its premium Optimus smartphone models, taking on Apple and Samsung Electronics.
Shares in LG, which trails Nokia and Samsung in handsets, have jumped by a third from their November lows versus a 10 percent gain in the KOSPI. The stock was previously a big underperformer.
Smartphones are set to grow as a proportion of the phone market, so having been left behind was a serious blow, said Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management in Tokyo.
In televisions, Chinese makers are pushing ahead aggressively, making competition harsher, which will probably have weighed on profits.
Koo replaced the heads of the struggling handset and TV divisions and had started his job making it mandatory to start internal meetings and briefings with chants of: Let's be sure to become No.1.
LG is the first major Asian electronics firm to report quarterly results. Japanese consumer electronics makers are mostly forecast to post earnings growth, but this will still be weak because they too are struggling to keep up with rivals Apple and Samsung.
LG shares ended 0.8 percent lower in a strong broader market after falling as much as 4 percent, as results showed losses from mobile phone sales narrowed.
Some analysts have upgraded their ratings on LG over the past two months, impressed by its new line-up of smartphones and expectations of a trough in its earnings cycle.
Profitability will improve significantly in the first quarter ... and we'll be able to return to profit, LG Chief Financial Officer Jung Do-hyun told an investor briefing.
Earnings from the handset division will also improve but are likely to remain in the red in the first quarter, he said.
LG reported an October-December operating loss of 246 billion won ($219.8 million), its second consecutive record quarterly loss, and worse than a consensus forecast of a 165 billion won loss polled by Thomson Reuters I/B/E/S.
According to Starmine SmartEstimates, which places more weight on recent forecasts by top rated analysts, LG was expected to report a record 336 billion won loss in the quarter.
The loss compares with a 114 billion won profit a year ago and a 185 billion won loss in the preceding quarter. LG proposed a 200 won per share year-end dividend.
MOBILE PHONES ON RECOVERY PATH
LG's entry into the high-end smartphone market, after Apple introduced the iPhone 4 and Samsung unveiled Galaxy S, means LG's phone business may remain in the red in the first half of 2011, analysts said.
The market sees LG's profit bottomed out in the fourth quarter and is turning around in the first quarter, as its Optimus smartphones are faring well, said Park Yong-myung, a fund manager at Hanwha Investment Trust Management, which owns LG shares.
But in the mid-term, I am skeptical about whether LG will catch up with Samsung as LG's gap with Samsung appears to be widening in smartphones and next-generation AMOLED displays.
LG reported a 262 billion won loss from mobile phone sales, with margins at a negative 7.7 percent from a negative 10.2 percent in the third quarter.
The company is banking on its recently introduced high-end models of Optimus Black and Optimus 2X, which uses powerful dual core processors to improve gaming and browsing speed.
LG, one of the world's leading home appliance makers, reported a more than six-fold jump in home appliance profit in the fourth quarter, helped by rising sales in North America and emerging markets, and thanks to cost cuts.
The home appliance unit was the most profitable among LG's five major businesses, reporting 78 billion won in operating profit in the fourth quarter from 12.2 billion won a year ago. Its air conditioning unit also swung to an operating profit of 9.7 billion won.
Weaker-than-expected consumer demand for TVs and price competition from the likes of Sony and Panasonic are also hitting LG.
Its TV division posted 122 billion won in operating loss, versus a 99 billion won profit a year ago.
Nokia unveils results on Thursday followed by Samsung a day later.
An improved global economic growth forecast of 4.4 percent for this year by the International Monetary Fund will benefit exporters such as LG, which generates around 90 percent of its revenue overseas.
(Additional reporting by Isabel Reynolds in Tokyo, Jungyoun Park and Hyunjoo Jin in Seoul and Baker Li in Taipei; Editing by Anshuman Daga)