LG U+ sees net profit plunge as it splashes out on 4G marketing

LG U+, an LG Group affiliate and Korea’s smallest mobile carrier, announced yesterday that it posted a net profit of 84.7 billion won ($75.5 million) for the whole of 2011, an 85.2 percent plunge from a year earlier, due in part to increased spending on marketing its fourth-generation (4G) mobile technology.

The company logged 9.3 trillion won in sales, up 8.9 percent on-year, and 285.7 billion won in operating profit, down 56.4 percent, it said.

The results come as the company, a longtime No.3 in the domestic mobile industry, spent the second half of last year trying to catch up with the advent of the faster fourth-generation service known as LTE (Long Term Evolution). The investment also fueled hopes that LG U+ may finally increase its share and presence in the industry.

In fact, 2011 proved a bad year for all of the technology affiliates of LG Group, the country’s No.4 business conglomerate, as LG Electronics and LG Display both posted massive losses due to weak sales in its smartphone and display businesses.

4G drive

One of the main reasons behind the disappointing figures from LG U+ is the dramatic increase of marketing fees in the fourth quarter used to attract LTE users. The company launched the commercial service in July and rolled out LTE-compatible devices in October.

“We spent about an extra 50 billion won on marketing in the fourth quarter compared to the previous three months,” an LG U+ official said.

It also spent an additional 90 billion won in fourth quarter due to fees related to its 2010 merger with LG Dacom and LG Powercom.

The company merged with its fixed-line operator LG Dacom and broadband Internet service provider LG Powercom in 2010 in a bid to better compete with its bigger rivals.

As a result, LG U+ posted a net loss of 64.2 billion won in the fourth quarter, compared with a net loss of 49.2 billion won in the same period in 2010.

Still, the company’s 4G drive has yielded some notable results. It now claims to be the only one of the nation’s three mobile carriers that saw its average revenue per user (ARPU) rise for most of last year.

“As we have attracted more smartphone users, especially LTE subscribers, we have become the only Korean mobile carrier to see the ARPU rise for the second, third and fourth quarters consecutively. In the fourth quarter, the figure reached 30,841 won,” the company said in a press release.

Saving LG

By the end of 2011, LG had 9.39 million accumulated subscribers, some 41 percent of which were smartphone subscribers.

Market leader SK Telecom has yet to announce its 2011 subscription numbers, while KT said it had 16.5 million accumulated subscribers - almost half of who had smartphones.

Buoyed by such results, LG U+ has set its LTE subscription target at 4 million for this year. It added that it will invest a total of 955.6 billion won this year in new business areas, including the LTE service.

However, this has led some analysts to predict a rough first quarter.

“LG U+’s aggressive attempts to attract subscribers will likely continue in the early months of this year,” said Kim Hong-sik, an analyst at NH Investment & Securities. “Given that, the company’s first quarter results could come as something of an earnings shock.”

Meanwhile, the group’s IT affiliates, which have traditionally served as growth engines, all failed to perform well last year.

Also yesterday, LG Innotek, which makes light-emitting diodes (LED) used in TVs, logged a net loss of 145.4 billion won in 2011, down from a net income of 195.8 billion won the previous year, as the display market remained sluggish.

On Friday, LG Display, the world’s No.2 maker of liquid crystal display (LCD) panels, posted a net loss of 787.9 billion won, also swinging into negative territory from a net profit of 1.16 trillion won the previous year, as it struggled to cope with falling LCD panel prices and weak demand for TVs.

By Kim Hyung-eun [hkim@joongang.co.kr]