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LG profits spike up, dark cloud looms

On the surface, LG’s first quarter results look incredible, but below the surface there may be cause for some concern. The company has racked up a net profit of $144.5 million for the quarter, which is up 66% from last year’s $87 million. The jump in profits occurred despite only a slight increase in sales. The results were fueled in large part by a recovery in the LCD business due to growing sales of flat screen televisions. Like Samsung, the company suffered from a stronger Won because of their reliance on exports.

Though the profit is very positive, results in their handset business will make observers and investors unhappy. LG is the fourth largest maker of phones in the world, but they may see a loss in the division. Margins for their phones have fallen from 3.6% last year to less than 1% this year, due in large part by an increase in lower end shipments to India. This, coupled with new accounting rules that force them to more aggressively account for inventory, means the company could lose money on phones. The second quarter is expected to be somewhat better as more higher end phones sell, led by the Chocolate phone, which will hit Europe for the first time.



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