Seoul: LG Electronics Inc reported a worse-than-expected 48.5 per cent drop in quarterly net profit on Tuesday and cut its 2005 sales target, but analysts see its key mobile phone business driving a recovery in earnings.
Third-quarter earnings were hit by squeezed profit margins on mobile phones, a weaker performance in its flat-screen venture and costs linked to spinning off its telecom equipment unit to form a joint venture with Canada's Nortel Networks Corporation.
Analysts said that the South Korean firm's mobile phone business should improve on strong demand for high-end phones from clients including Verizon Communications Inc.
?Considering new handset line-ups expected in the coming months, the positive trend for the handset business is expected to continue into the fourth quarter," said Fund Manager at Daehan Investment Trust Management, Seo Jung-ho.
LG, the world's fourth-biggest mobile phone maker, said it expected strong phone sales in the fourth quarter, but forecast slower sales in its display division due to falling prices of some products and transfers of its production bases overseas.
It cut its forecast for total 2005 sales to between 23.6 trillion- 23.8 trillion won ($22.5 billion-$22.7 billion), down from 28 trillion-30 trillion won it projected in January.
LG, also the world's top producer of air conditioners, earned 156.9 billion won ($149.7 million) in net profit for the quarter ended Sept. 30, falling short of analysts' forecasts of a 220 billion won profit.
That compared with a profit of 304.4 billion won a year before. The net profit rose 4.2 per cent from the previous quarter's 150.6 billion won.
Its results were hurt by a goodwill write-off worth 89 billion won after LG spun off its low-margin telecom equipment business.
However, operating profit nearly doubled from the second quarter to 279.9 billion won on record mobile phone sales.
Third-quarter sales were 6.02 trillion won, below analyst estimates of 6.04 trillion won and 6.11 trillion a year ago.
Shares in LG, which competes with Samsung Electronics Co. Ltd. in making handsets and TVs.
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