LG's handset sales drop in Q1, but company posts a profit

LG Electronics reported a drop in handset sales in the first quarter as weaker feature phones sales dragged down the business despite stronger smartphone sales. However, the South Korean electronics conglomerate's mobile communications and handset units reported another quarterly profit, building on momentum from the fourth quarter.

Overall, the company, which also makes everything from refrigerators to TVs, reported a net profit of around $213 million, a reversal from the $13.8 million net loss it had in the year-ago quarter. Total company sales fell 7 percent in the quarter.

LG said that its mobile communications business--which is dominated by its cell phone business but also houses its network operations--posted an operating profit of $34.2 million, despite a 14.2 percent drop in overall sales to $2.19 billion. Handset sales were down 14.2 percent year-over-year in the quarter, to $2.1 billion. The handset unit had a positive operating margin of 1.4 percent in the first quarter, improved from a -3.5 percent operating margin in the year-ago quarter. The fourth quarter of 2011 was LG's first profitable quarter for its handset unit in six quarters.

In the quarter, LG shipped 13.7 million units, down from 27.1 million in the year-ago period and 17.7 million in the fourth quarter of 2011. LG said that although revenue was down due to the shipment decline of feature phones, the company saw strong sales of its Optimus LTE and Optimus Vu products, and that in South Korea, smartphone revenue increased.

Looking ahead, LG said that although it expects total demand for handsets in the second quarter to not grow that fast, it expects continued growth for the smartphone market, especially for LTE phones in developed markets. LG said it plans to expand its LTE model lineup for developed markets while launching its design-centric "L-Style" series, 3G smartphones and a quad-core smartphone, its high-end Optimus 4X HD, which sports a quad-core Nvidia Tegra 3 processor.

LG has been trying to emulate the success that its larger competitor Samsung has found, especially though its sales of smartphones running Google's (NASDAQ:GOOG) Android platform, but LG has been squeezed along with other Android vendors in the middle of the pack like Motorola Mobility (NYSE:MMI) and Sony, as sales of Samsung's Galaxy lineup have surged.

LG Electronics expects to sell 80 million handsets, 35 million smartphones and 8 million LTE smartphones in 2012, a senior LG executive said in March. The overall handset sales would represent a drop from LG's mark in 2011, but the company expects to shift its focus toward higher-end, more profitable smartphones this year.

In an interview with Korea Times, Park Jong-seok, head of the company's handset division, laid out the sales targets for this year as well as the company's strategic vision. According to research firm IDC, LG shipped 88.1 million handsets in 2011, down from 116.7 million in all of 2010.

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

Special Report: Wireless in the first quarter of 2012

Related Articles:
LG targets sales of 80M handsets, 35M smartphones for 2012
Analyst bullish on LG's smartphone biz due to R&D spending boost
IDC: Apple surpasses LG, claims No. 3 global handset spot in Q4
LG unwraps quad-core Optimus 4X HD smartphone before MWC
LG pushes handset unit back to profit in Q4
Trailing in smartphones, LG tumbles in Q1