It has become almost a ritual for LG Electronics. Launch a new flagship smartphone and then blame it for the poor financial performance of its mobile division. This year, the flagship LG G6 had to take the blame. Two years ago, the Korean company said the G4 sales were below the expectations. Last year’s modular LG G5 didn’t have many takers. During its latest quarterly earnings call, LG told investors that the mobile division underperformed due to “weaker than expected” sales of its flagship LG G6 coupled with a jump in component costs.
What went wrong with the flagship LG G6?
LG Electronics announced its fiscal first quarter results on Thursday. While home appliances and other businesses generated billions of Korean won in profits, the mobile division incurred a loss of 132 billion Korean won ($117.27 million). Revenues from the mobile unit stood at $2.39 billion. If you look at it another way, the mobile business actually performed better than it did in the same quarter a year ago. It had posted a loss of 153.5 billion won ($132 million) in Q1, 2016.
So, what went wrong with the flagship LG G6? It sports a dual camera system on the back, has a bezel-less design, and a better fingerprint sensor placement than Galaxy S8. It has LG’s own payment service called LG Pay. In fact, LG G6 is one of the most positively reviewed smartphones of this year. When LG announced the device, Samsung’s Galaxy S8 was still several weeks away. It seemed like nothing could go wrong with the device. But the sales numbers tell a different story.
LG G6 is good, but it’s not as good as Samsung’s gorgeous Galaxy S8, which sports an Infinity display and a more powerful processor. The stellar performance of Galaxy S8 could be blamed for the poor sales of LG G6. But it appears that LG never intended its G6 to match or beat the Galaxy S8. It probably knew (or had accepted) that the G6 would play the second fiddle to the Galaxy S8.
The flagship LG G6 came with an older Snapdragon 821 processor. LG claimed it went ahead with the SD821 because it wanted to bring its device to the market before other premium phones running Snapdragon 835. Samsung, which makes SD835 chips for Qualcomm, was accused of hoarding the chipset for its own devices. LG G6 launched in the US after Samsung had announced the Galaxy S8 and started taking pre-orders.
Samsung’s Galaxy S8 is not only faster and more beautiful than LG G6, it also comes with DeX support, free VR headset, and an iris scanner. For a consumer, the Galaxy S8 is a better buy given both the devices are in a similar price range. However, LG has now slashed the price of G6 to attract buyers. The 64GB version of the device was originally selling at above $650. Now it’s available online for less than $500. Even in this price range, the flagship LG G6 as a new competitor in the form of OnePlus 5.
LG’s other business units post strong numbers
LG Electronics is now hoping to reverse the trend with the LG V30 and Q8. It’s too early to predict how the V30 would perform in the second half of this year. It will be competing against the Galaxy Note 8 and Apple’s 10th anniversary iPhone 8, the two most anticipated smartphones of the year. During the first quarter, the sole bright spot for the Korean company was the North American market, where smartphone sales rose 13% YoY. But the growth was largely driven by its mid-range and low-end smartphones.
Overall, LG Electronics is doing just fine, thanks to the strong performance of its home entertainment, home appliances, and vehicle components businesses. Its total revenues increased 3.9% to 14.6 trillion Korean won ($12.9 billion) during the quarter. The operating profits came in at 664 billion Korean won ($597 million). The home appliances division posted a profit of 466 billion won on the back of refrigerators and washing machines.
The home entertainment business earned an operating profit of 343 billion won due to the strong demand for high-margin OLED panel TVs. The Korean company said in a statement that it would expand its premium home appliance lineup in Q3 to strengthen its position in the market. Wall Street analysts believe the company’s earnings in the second half of 2017 would be lower than in the first half as its home appliance business would witness an off-season.
While LG’s smartphone business continues to struggle, Samsung posted a record $54.8 billion in sales and $12.6 billion in profits in the April-June quarter. Samsung said the Galaxy S8 sales were 15% higher than the Galaxy S7. Strong demand for its flagship phone coupled with the consistent growth in components business helped it put strong quarterly numbers. Samsung’s chip business alone posted $7.2 billion in operating profits during June quarter.
