Analyst bullish on LG's smartphone biz due to R&D spending boost

LG Electronics could be poised to claw its way back in smartphones thanks to a boost in research and development, according to one financial analyst.

LG Optimus Vu

Nomura Securities upgraded its rating on LG's stock from "neutral" to "buy" on sentiments that the company's smartphone trajectory will turn around this year. Nomura noted that at the end of 2011, LG had at least 4,800 and perhaps as many as 5,600 of its 8,000 R&D workers focused on smartphones, compared with around 1,360 R&D workers out of 6,800 focused on smartphones at the beginning of 2011.

LG said in November it would raise around $940 million via a rights offering in a bid to boost investment in its struggling handset unit and other core businesses. "The newly issued shares were listed in early January this year, and LG Electronics has secured a more positive business direction in both its TV and handset businesses since the capital increase," James Kim, a Nomura analyst, wrote in a research note.

Shortly after the rights offering was announced, LG said it would spend more than half of its initial 2012 capital expenditure budget, at least $500 million, on its ailing handset business. LG reported a fourth-quarter profit for its handset unit, its first in six quarters, and the company said that despite weaker overall sales it is making the transition to higher-end smartphones, especially those with LTE.

Last month at Mobile World Congress in Barcelona, Spain, LG unveiled a range of new devices, including the high-end Optimus 4X HD, which sports a quad-core Nvidia Tegra 3 processor. The company also announced the Optimus Vu, a 5-inch device in the "phablet" category to compete with Samsung's Galaxy Note, as well as a new "design identity" called "L-Style" in 2012 as it seeks to regain momentum in the market.

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