Cell-phone business losses devastate LG's third quarter

Net profit plunges 99 percent -- yes, 99 percent -- yet beats estimates

South Korea-based LG Electronics, the world's third-largest handset manufacturer, posted a second consecutive quarter of record losses in its mobile-phone business, causing Q3 net income to plunge more than 99 percent. Yet shares rose 1 percent on the Korea Stock Exchange because the company's net income of 7.6 billion won ($6.73 million) topped consensus estimates of a 50.7 billion won net loss. LG's net profit in last year's third quarter was 911.3 trillion won.

Investors appeared to be forgiving of LG's operating loss of 185.2 billion won, even though it exceeded analysts' estimates of 122 billion won operating loss. LG's mobile-phone losses of 303.8 billion won ($270 million) in Q3 more than doubled Q2's losses. The handset unit's operating loss margin in Q3 was 10.2 percent, nearly triple the 3.5 percent loss margin in the second quarter. Handset sales were 28.4 million units, down 7 percent from Q2's 30.6 million units. Even then, the company had to slash prices in a bid to move product. Globally, only Nokia and Samsung Electronics sell more handsets than LG. The big problem for LG, though, is it hasn't been able to compete in the smartphone market with Apple's iPhone, Research in Motion's BlackBerry and Samsung's Galaxy. The company hopes its Android-powered Optimus One smartphone, unveiled last month, will help turn things around. LG's former chief executive, Nam Yong, resigned last month after four years in charge. He was replaced by Koo Bon Joon, younger brother of LG Group Chairman Koo Bon Moo.

Chris Nerney writes about the business side of technology market strategies and trends, legal issues, leadership changes, mergers, venture capital, IPOs and technology stocks. Follow him on Twitter @ChrisNerney.

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