LG posts first loss in mobile unit in a year as competition intensifies

LG Electronics reported its first operating loss at its mobile unit in a year. The loss is likely due to intense competition and higher marketing costs for the company's flagship G2 smartphone.  

The company maintained its momentum in the smartphone market, selling 12 million smartphones in the period, only down slightly from the record 12.1 million it had in the second quarter. LG spokesman Ken Hong said the company sold 18.3 million total handsets (smartphones and feature phones) in the quarter, up from 16.2 million total handsets in the second quarter and 14 million handsets in the year-ago period.

Overall, sales in the company's mobile communications business jumped 24 percent year-over-year to around $2.86 billion.  However, the unit reported a $75.3 million operating loss, its first since the third quarter of 2012.

LG said that its profitability and average selling price were affected by increased competition and higher marketing investments.  The company said it improved LTE device sales by 31 percent from the second quarter due to the launching of the G2. However, 3G-only device sales declined due to intensified competition in developing markets.

"What worries me is that although its mobile unit saw increased sales in the third quarter, it registered a loss," Choi Nam Kon, a Seoul-based analyst at TongYang Securities, told Bloomberg. "That's a signal the market is becoming increasingly competitive and difficult. LG has to slash handset prices further in order to survive in this cutthroat battle."

Verizon Wireless (NYSE:VZ), AT&T Mobility (NYSE:T), Sprint (NYSE:S) and T-Mobile US  (NYSE:TMUS) are supporting the G2, giving LG an opportunity to get broad carrier distribution for a single high-end smartphone model, something it has not previously been able to do, and that its competitors have. Verizon and AT&T started selling the phone in September for $199.99 with a two-year contract; T-Mobile is offering it for $0 down with monthly payments of $25 per month for 24 months, and Sprint has the phone online for pre-order for $99.99 with a two-year contract and after a $100 credit promotion.

The smartphones has 5.2-inch 1080 IP IPS HD display and is powered by Qualcomm's (NASDAQ:QCOM) quad-core 2.26 GHz Snapdragon 800 processor. A key design feature of the phone is that its front and sides have no physical buttons, with the volume and power controls on the back of the phone, in what LG calls the "rear key." LG said this change gives users more control since the buttons are located where users' index fingers normally sit when holding the phone. Some reviewers have panned this feature.

Andy Kim, senior vice president of marketing at LG's mobile unit, told Bloomberg that marketing costs for the G2 were the biggest in company's history. Looking at the fourth quarter, LG said it will face intensified competition but plans to increase sales in the premium segment with the full-fledged global launch of the G2, while enhancing marketing for both mass market LTE and 3G smartphones "in order to maximize sales during the peak season and to improve brand power and market position."

For more:
- see this release
- see this AP article
- see this Bloomberg article
- see this Reuters article

Special Report: Wireless in the third quarter of 2013

Related Articles:
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Verizon, Sprint, AT&T, T-Mobile to sell LG's new flagship G2
LG's smartphone biz gains traction in Q2, with record 12.1M shipments
LG unveils white Nexus 4, says it has no plans to produce a 'Nexus 5'
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Article updated Oct. 25 at 9:25 a.m. ET with additional information on LG's third-quarter 2013 total handset shipments.

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