Samsung, LG see profits plummet in Q4

Samsung and LG Electronics both reported considerable drops in their fourth quarter results on Thursday, blaming sluggish growth in the smartphone market and falling memory chip sales.

LG Electronics’ smartphone business recorded an operating loss of 322.3 billion won ($289.5 million), 49 percent bigger than the previous year’s loss. This was the 15th consecutive quarter that the company’s smartphone business has been in the red. Annual revenue from the mobile communications division was 7.98 trillion won.

The company released the high-end V40 model last October, for which it conducted fierce marketing activities. Thursday’s result shows little return on that investment. LG explained that the sluggish smartphone market pulled down sales and the rising cost of marketing led to the net loss.

“Fourth quarter sales were sluggish - we released a new premium model, but there was a change of terms regarding promotions,” said Seo Dong-myeong, an executive at LG’s mobile communications team, during a conference call Thursday.

Operating profit for Samsung’s smartphone division steadily declined in 2018 to reach 1.5 trillion won in the year’s fourth quarter, down 37 percent from the same period in 2017. This was the first time since the third quarter of 2016 that figures fell below 2 trillion won. That summer saw Samsung recall its infamous fire-prone Note7 phablet.

“Our projection for 2019 is that the smartphone market will largely maintain last year’s size,” said Lee Jong-min, a senior executive at Samsung’s IT & mobile communications division, during a conference call.

Both companies hope the release of 5G smartphones this year will help them expand market share in an industry where competition is getting fiercer. Samsung’s Lee said the company aims to lead the market trend in 5G along with foldable phones, adding that he expects to see 5G models turn profits this year.

LG’s Seo also said he sees the 5G era as an opportunity for a big turnaround. “Only a few companies have the technology to make 5G models at the moment,” he said. “If we manage to set a solid foothold in the 5G smartphone market, we’ll see improvements in the division.”

Samsung and LG are slated to release their first premium 5G smartphones later this month at the Mobile World Congress in Barcelona, Spain.

According to the earnings report, both Samsung and LG managed to see record earnings for 2018 but struggled in the fourth quarter. Samsung’s operating profit was 10.8 trillion won, and LG’s was 2.7 trillion won. LG saw record profits come in from home appliances. Samsung’s came from semiconductors.

A big issue at Samsung, however, was the sharp decline in the semiconductor business. Its quarterly operating profit fell 43 percent to 7.77 trillion won. Sales during the same period were down 11 percent to 18.75 trillion won. The slump in the chip business is a big deal as it had been the biggest contributor to the company’s record sales over the last two years.

The company said in a statement that it expects “overall annual earnings to decline” in 2019, citing weaker performance in the memory business.

BY SONG KYOUNG-SON [song.kyoungson@joongang.co.kr]