LG struggles to keep pace with competing manufacturers

Guest post by Jaime

LG, the South Korean electronics company, is known for making everything from home appliances (refrigerators, washers and dryers,) and air conditioning products, to computer monitors, smartphones and televisions. Despite fairly consistent sales of their home appliances and air conditioning products, sales of basic cell phones, smartphones and 3D and smart televisions have been weak.

LG electronics struggling in the consumer segment

NAD Chastises LG and Sony

According to a report in TWICE (This Week In Consumer Electronics,) the National Advertising Division of the Better Business Bureau, went after both LG and Sony for their conduct during LG’s 2011 Cinema 3D campaign. NAD is the branch of the BBB that oversees self-regulatory practices within the advertising industry. In the case of LG, NAD went after the company for claims regarding their Cinema 3D televisions.

NAD’s Tests and Findings

NAD examined the conditions under which consumers watched the LG Cinema 3D TV, analyzing everything from viewing distance and angle to the refresh rate, screen size and image resolution. They also examined the 3D glasses. NAD then decided that the evidence on which LG based their claim was faulty and advised the company to discontinue advertising that made claims of superior performance. LG decided against appealing the decision, after concluding that the ad campaign had run its course.

LG Experiences Losses Due to Declining Sales

A slump in television and phone sales pushed LG to massive third quarter losses of 414 billion won (equivalent to $366 million USD,) compared to the previous year when the company reported a loss of 8 billion Korean won. A decline in revenue, with a drop to 13.4 billion won (or $11.8 billion) creates a somewhat bleak outlook for the company. A decline in both phone and television sales were largely to blame for this significant loss. LG scaled down basic phone production in favor of the more profitable smartphone.

Increased Marketing, Hoping to Take Advantage of Holiday Season

LG also faced losses because demand around the world for home entertainment products and their LCD monitor were weak. In anticipation of greater holiday promotions within the industry, LG increased marketing of their 3D and smart televisions, aiming to increase fourth quarter earnings.

Failure to Crack Android Market

Unlike Samsung and HTC, both of whom have gone after the Android market, LG has yet to succeed there. Part of the problem may be due to LG’s insistence on going after the mass market rather than higher end smartphones in creating its devices. According to Ittai Kidron, an analyst at Oppenheimer & Co., the surprisingly strong overall market prompted a 5.1 percent drop in LG’s overall share of the market.

LG has cell phones at all major US carriers, however, the company has yet to establish a presence with any, or an identity through their smartphones. In the hope of taking advantage of growing demand for faster phones, LG has plans to launch more 4G LTE (Long Term Evolution) smartphones.

Long Awaited Fourth Quarter Profits

According to Financial Press and CNET, the release of fourth quarter (October – December) financial records for 2011 showed a long-awaited operating profit of $20.5 million or 23 billion Korean won. Although it was much lower than the consensus forecast made by Thomson Reuters I/B/E/S of 64 billion won, it was most welcome news, especially in light of last year’s loss of 246 billion won and a third quarter loss of 32 billion won. The two products responsible for the turn-around, albeit small, were flat-screen TVs and higher-end smartphones.

The Uncertain Future

Even though shipments of cell phones fell from 21.1 million to 17.7 million during the third quarter of 2011, smartphone sales still produced an increase in revenue. LG still faces a tough challenge in the intensely competitive landscape of smartphone sales and technology.

LG has sold over one million units of the Optimus LTE since its introduction in October. That model, and other smartphones are fueling growth for LG. Despite this growth, however, Oppenheimer anticipates that 2012 will be a difficult year for the company. If LG management continues to focus on smartphones, and in particular, the 4G LTE/premium, and divert their attention away from feature phones, Oppenheimer may be correct in suggesting that the company may be looking at another year of market share losses.

In order to rebound and develop a more consistent pattern of profits in revenue, operating expenses and sales, LG needs to find a balance where they steer their research and development efforts towards investing equally in high-end and more modest smartphones, feature phones and televisions. Unless they can find this balance, while aiming to appeal to the widest range of users and budgets, they will face the never-ending struggle of trying to appeal to constantly changing user needs and wants, while keeping pace with trends.

About the author: Jaime is an avid hiker and skier who loves to write in her spare time for CenturyLinkQuote– home of CenturyLink Service.

1 Comment

  1. Great post and very informative, surely this is a reflection of the current global slowdown, it is whether the big boys can wear the storm. thanks for sharing.

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