The company posted sales of KRW 6.59 tn, growth of almost 12% over the year but 4% down on Q3. However net profit for the group fell from KRW 621bn a year earlier to KRW -671bn.
The sales growth came from its digital display and handset divisions, which both had seasonal rises.The handset division shipped 25.7m phones, growth of 12% sequentially and 8% year on year. Its net sales rose 32% over the year to KRW 3.21 tn, a sequential rise of 4%, suppressed by price pressure.
The main slide in profits came from the digital appliance (air conditioning, fridges etc) division and mobile handsets, which fell around KRW 200bn and KRW 300bn respectively on Q3. Nonetheless the handsets division’s operating profit was positive at KRW 75bn (2.3% operating margin).
For the full year LGs sales were up over 17% to KRW 27.6 tn, while net profit fell by 60% to KRW 483 bn. A large part of this fall was a nearly $400m fine imposed on the company for price fixing in the displays market. Operating profit more than doubled over the year to KRW 1.23 tn.
In its outlook LG said it expected its overall sales and profitability to decline, though it would be continuing its investments in brand and R&D. In particular it said it expects negative growth in the handset market for 2009 but re-iterated its strategy to push into lower-tier markets, raise volumes and build market share.
Analysis: LG achieved its publicly announced target of handset shipments over 100m for the year, posting 100.7m. This is good growth on 2007′s 80.5m and means it has now overtaken Sony Ericsson again for the #3 spot by volume. However it is still in 6th place by (euro) revenues, behind Apple and RIM, in spite of 32% revenue growth in KRW – this mostly reflects the change in currency rates rather than LG’s performance.
The growth came thanks to some good success with key models such as the Renoir 8 MPixel cameraphone follow-up to the Viewty, and the KS360 with a slide-out Qwerty keyboard aimed at the teen texting market. LG also had success in shipping lower end models into India. However, sales went backwards in the North and Latin America and Korea.
The average sale price (ASP) sank over the year from $111 to $91 and, thanks to currency movements, is now the lowest of the big vendors in € terms at €69. This reflects the change in mix towards the lower end of the market.
This shows how LG had to fight very hard for this success, with considerable sacrifice in pricing and profits as it “increased marketing” in order to prevent inventory building up. The average profit per phone collapsed from €10.4 to €1.6, although there is 13% € to KRW currency swing in this.
This leaves LG in a difficult position. The handset division has been the darling of the company, generating the vast bulk of the group’s profits for the last 18 months. With this quarter’s numbers it has moved from having some of the healthier margins in the mobile phone industry’s into the danger zone that Sony Ericsson entered early in 2008, with a painful combination of rising volumes, almost zero profit and the need to continue investing heavily to scale the business up.
LG’s management said it would be strengthening its market-responding capability, rationalising and improving flexibility in its business management. Not clear what that means in detail, but the task ahead is to produce more than a few hit models while scaling up its supply chain and channel position so as to improve economies of scale.
LG said that it would continue with its target of driving volume growth in the low end, and would also aim to capture the “feature” market – i.e. build a stronger mid-range portfolio. It’s good to hear one of the vendors recognising that there are still strong opportunities in the mid-range, instead of over-focusing on smartphones.