LG Electronics managed to significantly reduce its mobile losses and improve its operating profit in the third quarter of the year, according to the company's latest consolidated financial report. The Seoul-based firm saw its Android device division lose $130.5 million on $1.82 billion in revenue over the three-month period, a major improvement compared to the last quarter that it ended over $170 million in the red. Mobile sales still continued declining over the third quarter of 2018 and were down some $100 million sequentially. LG attributed the change to an overall drop in the global demand for smartphones, as well as the increased competition in the segment.
The South Korean original equipment manufacturer believes its loss reduction can be attributed to its new product strategy that it's describing as being more focused on the mid-range price bracket. The company is also expecting its performance improvements to continue over the final three months of the year, largely due to the V40 ThinQ, its latest Android flagship that's now available for purchase on a global level. Likewise, LG said its mobile consolidation efforts are still being pursued, suggesting more major cost cuts will follow. Its business as a whole continues to boom, having generated the equivalent of $13.76 billion in revenue and $667.7 million in operating profit. The results marked a notable improvement compared to Q2 2017 when LG reported a turnover of $12.89 billion and $588.2 million in profit. The new earnings still represent a minor sequential drop when not accounting for exchange rate fluctuations.
The LG Home Entertainment Company posted a $290-million profit on over $3.3 billion in revenue, primarily due to the fact that UHD and OLED TV sales remained high. The global demand for contemporary television sets is still on a downward trajectory, with that trend prompting LG to plan a larger focus on flagship models in the final quarter of the year. The plan won't be entirely global in nature and will likely only encompass the most developed markets as LG is expected to push for more premium TV sales to combat the expected revenue decline and maintain its profitability level.
No such intervention will be necessary in regards to the LG Home Appliance & Air Solution Company which not only sustained its high profitability but is expected to continue doing so on its own. The unit made $4.33 billion with over $365 million in operating income over the three-month period ending September 30, with Europe, North America, and South Korea being highlighted as particularly high-performing markets. Besides cost cuts, the unit's continued improvement is attributed to an increasing demand for high-end appliances in the developed parts of the world, with the report hence suggesting consumer-grade IoT products are still on the rise.
The LG Vehicle Components Company also recorded a massive revenue increase, posting $1.05 billion in turnover, a 41-percent annual improvement. While it ended the quarter over $38 million in the red, that fact is being explained by a temporary increase in raw material costs, with its revenue still outpacing the losses. The chaebol's smallest unit, the LG Business-to-Business Company, made $31.3 million with a $514.2-million turnover. A decline in solar module prices across the world and the tariffs imposed by the Trump administration in the United States negatively affected its profitability, though the overall outlook remains positive.
Background: Even as LG posted significant year-on-year improvements (the most important indicator for investors), its sequential performance reveals an inconsistent pattern; last quarter, the firm generated $13.9 billion with an income of $715.1 million. The quarter-three results are still being described as the new year-high due to exchange rate fluctuations. Regardless, compared to several years back, LG now appears to be running a much tighter ship and is seeing success across the vast majority of markets it chose to invest in. The firm previously said its diversification efforts will see it commit additional resources to the Internet of Things segment and 5G, among other emerging fields. No concrete details on the thereof were provided as part of the firm's quarter-three earnings.
While many industry analysts remain skeptical about LG's long-term prospects in the smartphone market, the firm repeatedly said it's in no way considering exiting the mobile game and believes it can turn things around under the new leadership of Hwang Jeong-hwan who replaced Juno Cho eleven months ago. One of his first orders of business was a complete revamp of the G7 project and a return to the ThinQ brand, though it's still too early to judge the effects of those moves.
Impact: While LG's mobile unit now appears to be on its way back to the black, the company's third-quarter performance has always been optimistic, even in its worst years. Due to that state of affairs, it remains to be seen whether LG's smartphone arm truly manages to break even in the foreseeable future. The firm's description of its new mobile strategy is also casting some doubt on its overall vision; while LG is now claiming it's more focused on the mid-range segment of the handset market, it released over half a dozen new Android flagships in the last ten months, confusing critics and consumers alike.
LG's smartphone business aside, the company seems to have a lucrative future ahead of it, especially given how its appliances are gaining significant traction and the market is already widely expected to experience a boom with the global rollout of 5G expected to take place over the next several years. Between TVs, appliances, and smartphones, the firm should be able to deliver another strong quarter, especially given how the final three months of every calendar year are traditionally the most lucrative period for consumer electronics manufacturers.
Aside from the questionable prospects of its mobile arm, the biggest negative takeaways from the new report stem from Washington's new trade policy that saw LG hit with new tariffs earlier this year. The company increased its prices on washing machines and other affected products in response to the development, which impacted its sales but did a solid job at maintaining profitability, though the strategy likely isn't sustainable in the long term and LG will still be hoping the White House eases its stance on foreign imports and possibly invest in some additional lobbying toward that goal.