Motorola's Envy, Lg's Pride

[Honest 836]

Motorola's envy, LG's pride

21 Jul, 2008, 1500 hrs IST,Bloomberg

NEW DELHI: LG Electronics Inc reported record quarterly profit as mobile-phone sales surged, challenging Motorola Inc as the world's third-largest handset maker.

Second-quarter net income climbed 84 percent to 706.9 billion won ($695 million), from 384.6 billion won a year earlier, Seoul-based LG said in a statement. Revenue increased 22.5 per cent to 7.23 trillion won.

Mobile-phone shipments advanced 45 per cent as LG's Viewty, Voyager and Secret models helped meet demand for touch-screen handsets spurred by the success of Apple Inc's iPhone. LG, which joins Nokia Oyj in posting phone earnings that beat estimates, forecast growth will slow as global economies weaken.

"LG's earnings look good so far mainly because of the progress in its main business," said Kim Young Tae, who helps manage about $400 million at KTB Asset Management Co in Seoul. Still, "slowing global growth will cool demand for mobile phones and other products."

LG Electronics rose 4.1 per cent to close at 113,500 won on the Korea Exchange. That extended this year's advance to 13.5 per cent, the biggest gain among shares of the world's four largest mobile phone makers.

Net income missed the 826 billion won median estimate in a Bloomberg survey of 12 analysts after LG booked 170 billion won in currency-related losses and faced a higher tax rate. Profit was helped by contributions from subsidiary LG Display Co, whose earnings tripled last quarter.

Operating income, or sales minus the cost of goods sold and administrative expenses, quadrupled to 634.8 billion won, beating the 613 billion won median estimate in the Bloomberg survey.

Mobile phone profit

Profit at the mobile phone division, which accounted for 38 per cent of revenue last year, doubled to 547.3 billion won, exceeding the median analyst estimate by about 5 percent. LG shipped a record 27.7 million phones during the quarter. Goldman, Sachs & Co estimates LG overtook Motorola in terms of shipments during the second quarter.

Nokia, the world's biggest mobile phone maker, last week reported earnings and revenue that exceeded analysts' estimates and forecast industry shipments this year may surpass its previous projection of about 10 per cent growth.

Lehman Brothers Holdings Inc and JPMorgan Chase & Co have cut their price estimates on LG's stock this month, citing concerns that a slowing global economy will undermine demand for mobile phones. LG's profit probably peaked in the second-quarter, James Kim, an analyst at Lehman, wrote in a note last week.

LG said profitability at its mobile phone division will decline from the second quarter because of slower demand and rising competition, though margins will remain above 10 per cent.

LG's display division, which sells plasma screens and televisions, posted a 117 billion won loss, narrowing from 265 billion won a year earlier, after sales rose 23 per cent. The median estimate from the Bloomberg survey predicted a loss of 79 billion won.