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Asia300

New LG chief faces first big test after earnings slowdown

Mainstay electronics unit sees profit tumble 30%

LG Electronics recently made its biggest-ever acquisition, buying Austrian automotive lighting maker ZKW Group.   © Reuters

SEOUL – LG’s new chief may have realized how tough his job is after South Korea's fourth-largest conglomerate suffered a big drop in second-quarter profit at its core unit. 

LG Electronics on Friday reported an preliminary operating profit of 771 billion won ($691 million) for the April-June period, down 30.4% from the preceding three months. Revenue edged down 0.7% to 15 trillion won.

Year on year, operating profit jumped 18.5%, while revenue rose 3.2%. The company will release detailed results later in the month.

LG Chairman and CEO Koo Kwang-mo took the helm of the IT and chemical group last month, following the death of his father Koo Bon-moo from brain cancer in May.

Analysts say the 40-year-old new leader needs to diversify LG’s business portfolio by strengthening its automotive electronics and robotics sectors through aggressive mergers and acquisitions.

“There’s nothing good in the company except the home appliance sector. The display business was hit by Chinese makers, while the smartphone unit is struggling to make profits,” said Park Ju-keun, president of CEO Score, a corporate information agency.

With the appointment of Koo Kwang-mo as CEO and chairman, LG is being criticized for following the chaebol tradition of keeping corporate management under the control of the founding family.

“Koo should lead the company to expand its business territories by accelerating investments in the auto electronics and robotics industries to absorb their expertise and cope with fast-changing technology environments,” Park said.

In April, LG bought ZKW Group, a leading Austrian automotive lighting company, for 1.1 billion euros ($1.29 billion), the largest deal ever made by the conglomerate.

LG said it expects the acquisition to make it the global lighting leader in autonomous vehicle components. Besides Europe, ZKW supplies products in China, Mexico and the U.S.

But market watchers note that sluggish smartphone sales and falling liquid-crystal display prices are burdening LG Electronics’ performance.

“We anticipate weak sales of its new flagship smartphone model, G7 ThinQ, and a rise in marketing expenses to negatively impact its earnings,” said S.K. Kim, an analyst at Daiwa Capital Markets. “LG Display has been significantly impacted due to a larger-than-expected LCD panel price decline.”

LG Display’s performance is directly related to LG Electronics, which owns 37.9% stake in the display maker.

Shares of LG Electronics fell 2.7% to 75,700 won on Friday, hitting a fresh 10-month low. The South Korean market's benchmark Kospi rose 0.68% to 2,272.87.

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