LG's smartphone struggles continue in Q2

LG Electronics posted weak second-quarter results, with its handset unit unable to produce smartphone hits. The South Korean electronics conglomerate's handset division suffered its first loss in four years.

On a company-wide basis, LG's net profit fell to $724 million, down from $1.08 billion in the year-ago period. However, its handset unit posted an operating loss of $101 million in the quarter, a dramatic reversal of the $524 million profit it recorded in the year-ago period. The loss was triple the size projected by five analysts surveyed by Bloomberg.

LG said handset shipments rose 13 percent from the first quarter. The company shipped 30.6 million units in the second quarter, up from 27.1 million in the first quarter and up 2 percent from the 29.82 million it shipped in the year-ago period. However, LG's handset unit had an operating loss margin of 3.5 percent, compared with a 0.9 percent profit margin in the first quarter. The share of LG's handset sales in North America rose from 28 percent in the first quarter to 32 percent in the second quarter.

The company blamed the declines in profits on a falling average selling price for its phones--which it did not disclose--in developed markets, as well as continued investment in research and development and marketing.

"We believe the smartphone market will become a mass market and our strategy is to boost market share first with mid-end models such as the Optimus series we are planning to launch this quarter," LG CFO David Jung told analysts. "Our handset business will continue to experience difficulties in the third quarter, and would start recover from the late fourth quarter," he added.

According to Forbes, LG will continue to focus on developing handsets running on Google's Android platform (Verizon Wireless (NYSE:VZ) launched LG's Ally, the manufacturer's first Android phone for the U.S. market, in May). However, LG also plans to support Microsoft's forthcoming Windows Phone 7 platform.

For more:
- see this WSJ article (sub. req.)
- see this Reuters article
- see this Bloomberg article
- see this Forbes article
- see this FierceWireless Q2 earnings page

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