LG's handset profit takes a hit

LG Electronics shipped more handsets in the fourth quarter than in previous quarters, but the firm's handset profit margin dropped sharply due to rising marketing expenses and a drop in average selling price. Nevertheless, the world's No. 3 handset maker reiterated its targets for 2010; the company said it expects its handset division to grow by 19 percent with shipments of 140 million units this year.

lg handset operating margin in q409On a companywide basis, LG posted a profit of $256.8 million, up from a record loss in the year-ago quarter. The handset unit raked in $3.59 billion in sales, down 7.4 percent from the year-ago quarter and down 10.7 percent from the third quarter. LG shipped a record 33.9 million handsets in the fourth quarter, up 32 percent year-over-year and up 7 percent from the third quarter.

However, the operating margin for the company's mobile communications business, which houses its handset operations, fell to 1.3 percent, way down from the previous quarter's 8.4 percent and the 4.49 percent it recorded in the year-ago quarter. LG's handset profits fell 69 percent from the fourth quarter last year. LG attributed the decline to a drop in average selling price (which it did not provide), higher marketing expenses and expansion into emerging markets. It was the company's lowest profit margin since the third quarter of 2006. LG said shipments grew in North America but declined in South Korea.

The company said it expects the overall handset market to recover this year, though it did not say by how much. For itself, the company said it would put more focus on smartphones and differentiating its content and services. Earlier this month, the company said that roughly half of the smartphones it releases this year will run on Google's Android platform, though it will also remain committed to Microsoft's Windows Mobile platform. LG has so far taken a backseat to competitors in the smartphone arena, but is aiming to make a major push on that front this year.

Additionally, LG CFO David Jung said the company expects the average selling price of its phones to decline throughout the year, despite higher sales volumes, according to Reuters. He said that LG expects handset margins to improve in the second half of the year.

For more:
- see this release
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this Reuters article 

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