Despite the much-hyped launch, G6 series disappointed its creator and would likely eat up the lucrative business of high-end home appliances for LG Electronics this year as well.
Analysts are beginning to advise discretion in the stock, which has gained 43.2 percent so far this year on positive outlook for the company amid smooth sales of the new flagship smartphone.
The mobile phone division that has been in the red since the third quarter of 2015 showed sharp improvement in the first quarter after the launch of the multi-featured G6 phone.
Losses ballooned to 468 billion won ($406.6 million) in the fourth quarter last year from 202.2 billion in the first quarter. The deficit was sharply reduced to 200 million in the first three-month period of this year, raising expectations that the phone division could begin to turn out profit this year.
“Losses in wireless device were brought down through cost-cutting efforts in the money-losing division. But the company got ambitious with the new phone and overspent in marketing costs,” an analyst said.
The Korean tech giant’s second-quarter earnings guidance released on Friday fell below market expectations. LG Electronics estimated its operating profit for the quarter ended in June at 664.1 billion won, lower than the market consensus of 770.9 billion won. Although the company did not provide income by segment, analysts estimated the mobile unit to have posted over 100 billion won in losses. Increased marketing costs generally aid sales, but G6 proved to have done poorer than expectations, according to analysts.
Shares of LG Electronics retreated 16.3 percent over the last month. On Friday, the stock fell 4.15 percent.
Analysts revised down earnings profit for the remainder of the year, estimating 619.1 billion won in the third quarter and 516.6 billion won in the fourth quarter.
“The company’s income is likely to deteriorate as smartphone losses widen,” said Lee Soon-hak, analyst at Hanwha Investment & Securities Co.
Shares of LG Electronics closed Monday at 70,800 won, down 3,100 won or 4.19 percent from the previous session.
By Moon Il-ho
[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]