[Click eStock] LG Electronics Putting Down Smartphones... "Offset Possible with Auto Parts"

Steep Growth in Automotive Parts... Profit Turnaround Expected This Year
"Some Development of Premium Smartphones Needed for Smart Car and AI Connectivity"

[Asia Economy Reporter Minwoo Lee] LG Electronics is increasing new growth investments in automotive components (VS) and artificial intelligence (AI) following the restructuring of its smartphone (MC) business. It is analyzed that the decline in MC business sales can be sufficiently offset by the growth of the automotive components business.

On the 25th, Daishin Securities maintained a 'Buy' investment rating on LG Electronics with this background and raised the target price by about 35.3% to 230,000 KRW. The previous closing price was 177,500 KRW.

Previously, LG Electronics stated that it is reviewing business operation directions with all possibilities open, including downsizing and restructuring of the MC business. Until now, the strategy was to escape the deficit structure through sales expansion centered on premium smartphones, but it is now evaluated that the MC business is effectively entering the process of being phased out. It appears that LG Electronics judged that increasing market share and profit recovery in smartphones would be difficult amid challenges in smartphone differentiation.

After restructuring the MC business, LG Electronics is expected to increase new growth investments in automotive components and AI. Daishin Securities views this as aligned with market demands and a timely decision. Kangho Park, a researcher at Daishin Securities, said, "If the MC business restructuring proceeds with the abandonment of mid-to-low-end lineups and the sale of overseas production subsidiaries, the operating loss of the MC business will significantly decrease," adding, "The sales decline can be offset by the growth of the automotive components business (VS), and with additional research and development (R&D) in automotive components, robotics, and AI, LG Electronics can establish a new identity as an AI-based integrated solutions provider."

In fact, last year, the MC business is estimated to have recorded sales of 5.348 trillion KRW and an operating loss of 836.7 billion KRW. The VS business sales are expected to improve from 5.743 trillion KRW last year to 7.583 trillion KRW this year, and operating loss of 369 billion KRW to an operating profit of 54 billion KRW, respectively.

However, it is analyzed that developing some premium smartphone models remains important. Since smart cars based on electric vehicles and autonomous driving, AI, and Internet of Things (IoT) environments are closely related, a strategy focusing on developing a few models is necessary.

If business restructuring proceeds in this direction, the operating loss of the MC division is expected to shrink, while after this year, effects such as expanding competitiveness of existing businesses, securing new growth engines, and laying the foundation for additional mergers and acquisitions (M&A) are anticipated. Researcher Park said, "Last year, through a strategic partnership with Canada's Magna, establishing a new corporation centered on drive motors, and acquiring ZKW in 2018 to secure global automotive customers, LG Electronics has enhanced its competitiveness in the automotive components market," and forecasted, "Expanding competitiveness in the automotive components business and promoting MC business restructuring will lead to an increase in LG Electronics' corporate value."

This content was produced with the assistance of AI translation services.