LG Electronics Inc. reported a lower-than-expected 48.5 percent drop in quarterly net profit and cut its 2005 sales target, but analysts saw its key mobile phone business driving a recovery in earnings. Third-quarter earnings were hit by squeezed profit margins on mobile phones, a weaker performance in its flat-screen venture and costs linked to spinning off its telecom equipment unit to form a joint venture with Canada's Nortel Networks Corp.
Analysts said the South Korean firm's mobile phone division, which accounted for 43 percent of revenue in the third quarter, should improve on strong demand for high-end phones from clients including Verizon Communications Inc.
"Considering new handset line-ups expected in the coming months, the positive trend for the handset business is expected to continue into the fourth quarter," said Seo Jung-ho, a fund manager at Daehan Investment Trust Management.
LG said it expected strong phone sales in the fourth quarter, but forecast slower sales in its display division due to falling prices of some products and transfers of its production bases overseas. It cut its forecast for total 2005 sales to between 23.6 trillion to 23.8 trillion won (approx. U.S. $22.5 billion to approx. $22.7 billion), down from 28 trillion to 30 trillion won (approx. $26.6 billion to approx. $28.5 billion) it projected in January.
LG, also the world's top producer of air conditioners, earned 156.9 billion won (approx. $149.7 million) in net profit for the quarter ended Sept. 30, falling short of analysts' forecasts of a 220 billion won (approx. $209.2 million) profit. That compared with a profit of 304.4 billion won (approx. $290 million) a year before. The net profit rose 4.2 percent from the previous quarter's 150.6 billion won (approx. $143.2 million).
Its results were hurt by a goodwill write-off worth 89 billion won (approx. $84.7 million) after LG spun off its low-margin telecom equipment business. However, operating profit nearly doubled from the second quarter to 279.9 billion won (approx. $266.2 million) on record mobile phone sales. Third-quarter sales were 6.02 trillion won (approx. $5.72 billion), below analyst estimates of 6.04 trillion won (approx. $5.74 billion) and 6.11 trillion won (approx. $5.8 billion) a year ago. (Reuters)
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