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Possible 80 Percent Drop In Q4 Profit For LG Electronics Due To Reduced TV Margins

Possible 80 Percent Drop In Q4 Profit For LG Electronics Due To Reduced TV Margins
Following on the heels of South Korean tech giant Samsung announcing massive drop in fourth quarter earnings and about a week after its first profit warning for the fourth quarter issued by US teach giant Apple Inc., another South Korean electronic gadgets giant - LG Electronics Inc said on Tuesday that there could be a potential drop of a massive 80 per cent in operating profits in the fourth quarter last year compared to the same period a year ago.
This number was far below that the market and analysts were expecting to hear from the company.
For the for October-December period last year, an estimated profit of 75.3 billion won ($67.03 million) was announced by LG which is also the second largest television set maker in the world – second to its home rival Samsung Electronics. The estimated operating profit announced by the company was much lower than the consensus average estimates of 11 analyst estimates in an I/B/E/S Refinitiv poll and markets of about 387 billion won in operating profits.
The company said in a regulatory filing that the drop in revenues generated would likely be in the 7 per cent year on year at about 15.8 trillion won while the consensus average of the number was estimated to be around 16.3 trillion won.
No further details about the financial numbers was disclosed by LG as the company said that the complete results for the fourth quarter as well as for the entire year of 2018 would be announced by it publicly in detail by the end of January.
According to analysts, the most likely reasons for the very bad performance included low profit margins for its high-end TVs because of increased competition. Another reason was that the smartphone business of the company is still continuing to make losses.
“It’s a surprise,” said analyst Lee Jae-yun at Yuanta Securities. “Home appliance sales were worse in emerging markets and China, while its high-end TV business isn’t making profit as much as before.”
Enhanced marketing expenses in the face of increased competition and the higher year-end bonuses given out to employees also had a negative impact on the operating profits of the company on the top of reduced revenues.
According to the latest data from market tracker Counterpoint Research, in the second quarter of last year, LG held a 3 percent share of the global smartphone market.
On the same day, South Korean rival Samsung announced an estimated 29 per cent fall in its quarterly profit which was its first quarterly drops in profits in two years. That drop was primarily driven by tough market conditions in the global memory chip and mobile phone markets and a slowdown of one of demand for smartphone chips in China.

Christopher J. Mitchell

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