South Korean electronics giant LG Electronics has had a rough time over the past few months, and it has been cruelly reflected in the company’s earnings for the first quarter in 2019. In a development that will come as a bit of a shock for investors, the company’s profit levels were off the mark by as much as 19% from the forecast, and that sort of a nosedive in profits is naturally going to cause some short term pain for any company. While the rest of the market in Korea was on the green by 1.2%, LG shares slid and at one point, was down by 1.5% on Friday. The reason behind the poor show from LG is down to significant losses in its smartphone business and intense competition in the television industry, an industry that the company has typically dominated.
As things stand, LG is the biggest television manufacturer in the world after fellow Korean giant Samsung Electronics, but competition has eroded its dominance in this category in the period between January and March 2019. It recorded operating profits of 1.1 billion won during the same quarter in 2018, but in 2019 the same figure has slid sharply and stands at 899.6 billion won. That being said, it needs to be pointed out that its operating profit has comfortably beaten analysts’ estimates which stood at 808 billion won. However, that is a small consolation in a disappointing quarter.
One of the biggest loss makers for the company has been its smartphone business, which has consistently recorded losses over the past two years. In that regard, it has lagged behind rivals Samsung throughout, who have stolen a march on LG in this segment despite its own troubles. LG plans to launch its own 5G phone later on in April, but it remains to be seen if it can capture market share, considering the fact that Samsung has already rolled out its 5G enabled handset.
The biggest reason behind the South Korean company’s troubles in the television business has been the onset of price wars that have seen customers flocking to cheaper products. On top of that, the economic downturn in China has also been a body blow for LG. A BNK Securities analyst stated that price cuts by Samsung and competition from Chinese television makers are also major factors in the poor performances. The analyst said, “LG’s competitor Samsung recently cut prices for its TV products in a bid to get ahead as Chinese television makers have been rapidly catching up.”