LG needs a hit with G Pro 2 phone

Can LG Electronics overcome its weakness in smartphones and a credit downgrade with the early launch of a new product?

During a media briefing at its headquarters in Seoul, the electronics company said yesterday it will unveil its premium smartphone, the G Pro 2, on Feb. 13. Industry insiders expected it to be launched at the Mobile World Congress in Spain on Feb. 24.

The G Pro 2 is equipped with an improved speaker and the OIS Plus function, which prevents fuzziness in photos taken with the phone even if the user’s hand shakes or the photo is taken in motion. Samsung does not yet have an OIS plus function on its flagship Galaxy S phone.

LG emphasized the improvement made to the phone’s speaker, saying it used a 1-watt speaker, for the first time in Korea, which improved audio output by more than 30 percent.

It also will introduce a smart music player through which users can easily adjust the pitch and the tempo of the music. The industry expects the G Pro 2 to have a 6-inch full HD display, 3-gigabyte RAM memory and Qualcomm’s Snapdragon 800 processor.

“We have been thoroughly and precisely preparing for a new product that will lead the smartphone market for the first half of 2014,” said an LG Electronics spokesperson. “The big-screen smartphone will provide users with the joy of listening to abundant sound.”

On Thursday, international credit rating agency Moody’s Investors Service downgraded LG Electronics to Baa3 from Baa2, mainly due to the company’s poor earnings in its core business: smartphones.

That is the second lowest investment grade. Earlier, S&P downgraded LG’s rating to BBB-.

“Global credit rating firms are warning that it is risky to invest in the company and the business, of which the annual operating margin does not exceed 3 percent,” said a local market analyst. While LG Electronics posted 58.14 trillion won ($54.13 billion) in annual sales for 2013 and 1.28 trillion won of operating profit, its annual operating margin stayed at 2 percent last year.

Its ambition to become the world’s third-largest smartphone maker, following Samsung Electronics and Apple, was foiled after Chinese IT company Lenovo leapfrogged LG Electronics to become the world’s third-largest smartphone vendor in 2013, according to Strategy Analytics. It was even behind Huawei, another Chinese smartphone maker that moved past LG by securing 4.8 percent of the global smartphone market. LG controlled 4.7 percent.

“It seems that LG has rushed to launch the product earlier to counter market worries about the company’s profit structure and a slowdown in its smartphone business,” said Kim Ji-san, an analyst at Kiwoom Securities.

“Instead of deciding to compete directly against Samsung Electronics, LG seems to have chosen to launch a preemptive strike.

“LG’s profit will definitely turn positive in the second quarter of this year with the launch of G Pro 2,” he said. “Although Samsung will launch its Galaxy S5 soon, the G Pro 2, with a massive screen, is different. The earlier G Pro model also gained positive responses in the domestic market last year.”

BY KIM JUNG-YOON [kjy@joongang.co.kr]