SEOUL -- LG Electronics Inc. said its third-quarter net profit plunged 93% from a year earlier on hefty foreign-exchange-related losses, although a strong performance in mobile phones boosted operating profit.
But in a sign that conditions for global technology firms may deteriorate amid a world-wide economic slowdown, LG said fourth-quarter sales growth will slow and said it will enter the low-tier handset market next year in an effort to drum up sales amid weakening demand.
"The fourth quarter is the high season for displays and handsets, but the global economic slowdown is expected to impact our sales, resulting in a slight increase from the previous quarter," said the company, South Korea's second-largest electronics maker by revenue after Samsung Electronics Co.
Dimmer in Digital
Profitability in the digital-displays and digital-media divisions, in particular, will likely worsen in the current quarter, it said.
"Next year will be more difficult not just for us but for all electronics makers," said Chief Financial Officer James Jeong. "We're thinking of expanding outsourcing to help cut costs and remain flexible to changing markets."
LG reported a net profit of 24.9 billion won ($18.7 million) for the three months ended Sept. 30, down from 339.2 billion won a year earlier. Operating profit rose 58% to 570.5 billion won from 361.5 billion won, while sales climbed 21% to 12 trillion won from 9.91 trillion won.
But in a sign that earnings growth is slowing, LG's third-quarter operating profit declined 33% from a quarterly record of 856 billion won in the second quarter. Sales also fell, by 5.8% from the second quarter's quarterly record 12.74 trillion won.
The company's bottom line in the third quarter was hurt by the depreciation of the won versus the dollar, which inflated valuation losses from its dollar-denominated debt. The company had $1.7 billion in dollar-denominated foreign debt at the end of September.
It posted 389.5 billion won in foreign-exchange-translation losses in the third quarter. "That's an accounting loss that doesn't entail actual cash outflow and could be reversed in the future if the exchange rate stabilizes," said Steve Lee, an analyst at Goodmorning Shinhan Securities.
Analysts said a weaker won against the dollar could help enhance LG's cost competitiveness, contributing to its operating profit, as most of its sales stem from exports. The won closed at 1,207 won per dollar at the end of September, compared with 915.1 won at the end of September last year. LG said it expects the won to average 1,150 per dollar in the fourth quarter.
Fewer Handsets Shipped
LG, the world's fourth-largest mobile-handset maker by volume, said it shipped 23 million handsets globally -- including premium models such as Viewty and Secret, in the third quarter. That was down from the 27.7 million units it shipped in the second quarter of this year.
LG reiterated that it expects to achieve its annual target of 100 million handsets, compared with 80.5 million units in 2007. But the company said it plans to enter the low-end handset market in the first half of next year to compete with bigger rivals such as Nokia Corp. in emerging markets.
"We'll focus on profitability for the time being, but we'll be serious about entering the low-tier market next year," Mr. Jeong said. "We are targeting a high-single-digit profit margin in the low-end market by 2011."
Corrections & Amplifications
LG Electronics Inc.'s chief financial officer is David Jung. This article Tuesday incorrectly identified the finance chief as James Jeong.
