LG Electronics released its fourth quarter and full-year 2017 financial results this morning, and while the news is mostly very good for the company, its mobile division continues to suffer losses.
LG took in $55.4 billion in revenue for 2017, an increase of 10.9% over 2016 and the highest ever for the company. Profitability increased by 85% over last year at $2.23 billion. For the fourth quarter alone, LG saw a 15% growth over Q4 2016 revenues with $15.3 billion, and a profit of $330.9 million, which we reported when the company released its preliminary results earlier this month.
The situation for LG's phones is, at best, a mixed bag. Revenues increased to $2.77 billion, but LG still took the hit of a $192.33 million loss. That wound is less severe than last quarter's $331.37 million loss, which LG attributes to "strong sales of the LG V30 and other premium smartphones and an improved business structure." That improved business structure refers at least in part to LG's surprising announcement earlier this month that they would no longer churn out yearly flagship devices.
Among its explanations for its troubles, LG cites "increasing U.S. trade protectionism" and "strong competition" from Chinese device manufacturers.
However, unit sales are up 2% from the previous quarter (though down 1% from one year ago), to which LG credits "increasing sales of V30 and Google’s new premium OLED phone," referring to Google's Pixel 2 XL which they manufacture.
In a presentation for investors, LG names three devices as its "key products" in mobile: the V30, the Q6, and the X4. The absence of the LG G6 and G6+ is telling, especially considering that, like the Q6, they are both among Amazon's ad-subsidized Prime Exclusive phone selections. But the Gx naming scheme is likely coming to an end, and the company has reportedly scrapped the next generation G7-or-whatever-it's-called that had been in development in favor of some new, unknown design. LG did not break down sales by device model.
The profitability gains that LG is enjoying came almost entirely from appliances and televisions, with a little bit of help from their Vehicle Components unit. LG Home Entertainment, which manufactures TVs, more than doubled its revenue for the quarter over last year with a 14% increase in sales and what LG says is a high demand for its premium TVs.
As long as LG can continue to be profitable in other areas, it can theoretically continue to manufacture phones at a moderate loss. There's certainly some value to simply "being in the game" of the smartphone industry, even if only as a prestige business that keeps LG's brand in consumers' minds for other electronics purchases. But as AP's David Ruddock recently pointed out, LG is being hopelessly overshadowed by Samsung and Apple, a problem that will only get worse if LG devices become rarer sights in carrier stores. And unless its high-end offerings truly blow people away, all that prestige won't matter much if no one knows those devices exist.
As of this writing, LG's stock is up about 1%.
LG ANNOUNCES 2017 FINANCIAL RESULTS
Strong Profitability and Highest Annual Sales Ever
Led by Performance of Premium Home Appliances and TVs
SEOUL, Jan. 25, 2018 — LG Electronics Inc. (LG) today announced record full-year revenues for 2017 of KRW 61.4 trillion (USD 55.4 billion), an increase of 10.9 percent from the previous year, the highest in the company’s history. Full-year 2017 profits of KRW 2.47 trillion (USD 2.23 billion) – the highest profit since 2009 – increased 85 percent from 2016 due in large part to strong performance by premium home appliances and TVs. Fourth-quarter 2017 revenues grew 15 percent versus 2016 to KRW 16.96 trillion (USD 15.3 billion), generating strong operating profits of KRW 366.8 billion (USD 330.9 million).
The LG Home Appliance & Air Solutions Company reported full-year 2017 revenues of 19.23 trillion (USD 17.34 billion), a 11 percent increase from the previous year, reflecting strong demand for premium products such as TWINWash washing machines, InstaView refrigerators and energy-efficient home appliances. Fourth-quarter 2017 revenues of 4.33 trillion (USD 3.91 billion) rose 7 percent from the same period the previous year, with sales in Korea up 27 percent year-over-year. Quarterly operating income declined to KRW 80.7 billion (USD 72.8 million) because of increased marketing expenses related to LG SIGNATURE, infrastructure investments in North America and R&D expenditures related to AI appliances and robots.
The LG Home Entertainment Company reported full-year revenues of KRW 18.67 trillion (USD 16.85 billion), a 7 percent increase from the previous year. Strong full-year operating profit of KRW 1.57 trillion (USD 1.41 billion) reflected the continued growth in demand of premium LG OLED and UHD TV products. Fourth-quarter 2017 sales were strong, up 14 percent year-over-year to KRW 5.48 trillion (USD 4.94 billion), thanks to increasing demand for LG premium TVs. Operating income for the quarter increased 134 percent from the same period 2016 to KRW 383.5 billion (USD 345.96 million).
The LG Mobile Communications Company posted full-year sales of KRW 11.67 trillion (USD 10.52 billion) despite a challenging marketplace and strong competition from Chinese brands. Fourth-quarter revenues increased to KRW 3.07 trillion (USD 2.77 billion), while the quarterly operating loss narrowed to KRW 213.2 billion (USD 192.33 million) due to strong sales of the LG V30 and other premium smartphones and an improved business structure.
The LG Vehicle Components Company posted solid full-year sales of KRW 3.49 trillion (USD 3.15 billion), an increase of nearly 26 percent from the previous year, and quarterly sales of KRW 856.7 billion (USD 772.8 million), down slightly from the same period a year earlier. The company’s fourth-quarter 2017 profitability declined due to a temporary decrease in sales in the infotainment business and investments in new business. Growth of the global electric vehicle market is expected to generate additional demand for components in 2018.
2017 4Q Exchange Rates Explained
LG Electronics’ unaudited quarterly earnings results are based on IFRS (International Financial Reporting Standards) for the three-month period ending December 31, 2017. Amounts in Korean won (KRW) are translated into U.S. dollars (USD) at the average rate of the three-month period of the corresponding quarter — KRW 1,108.51 per USD.
Earnings Conference and Conference Call
LG Electronics will hold an English language conference call on January 26, 2018 at 09:00 Korea Standard Time (00:00 GMT/UTC). Participants for the English conference call are instructed to call +82 31 810 3061 and enter the passcode 9084#. The corresponding presentation file will be available for download at the LG Electronics website (www.lg.com/global/ir/reports/earning-release.jsp) at approximately 16:00 on January 25, 2018. Visit http://pin.teletogether.com/eng and pre-register with the passcode provided. For those unable to participate, an audio recording of the news conference will be available for a period of 30 days after the conclusion of the call. To access the recording, dial +82 31 931 3100 and enter the passcode 142890# when prompted.
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