LG Electronics Surpasses 70 Trillion Won in Sales... When Will the Auto Parts Business Turn Profitable?

Q4 Last Year VS Business Division Operating Loss of 53.6 Billion KRW

[Image source=Yonhap News]

[Asia Economy Reporter Park Sun-mi] LG Electronics surpassed 70 trillion KRW in sales for the first time last year, setting an all-time record, but failed to turn a profit in its automotive components business due to a shortage of automotive semiconductors.

According to industry sources on the 30th, LG Electronics attributes the failure to achieve profitability in its Vehicle Component Solutions (VS) division, which handles the automotive components business, to the shortage of automotive semiconductors last year.

At the earnings conference call held on the 27th, LG Electronics stated, "The delay in the VS division's turnaround to profitability compared to initial expectations was due to reduced vehicle production caused by the shortage of automotive semiconductors, increased semiconductor-related procurement costs, and higher operating expenses due to supply instability. While we expect the slowdown in vehicle production to gradually ease, we believe there remains uncertainty at the level of specific components."

They added, "Although sales growth from new project launches and sustained fundamentals continue, risks of cost increases such as ongoing semiconductor supply shortages and rising material costs are expected to increase, limiting sales expansion and profitability improvement. We will strive to achieve profitability on a quarterly basis as soon as possible."

Thanks to strong sales of home appliances and TVs, LG Electronics recorded a consolidated sales figure of 74.7216 trillion KRW last year, marking an all-time high. The VS division also achieved a significant milestone by surpassing 7 trillion KRW in annual sales for the first time, but failed to turn a profit. In the fourth quarter of last year, the VS division posted an operating loss of 53.6 billion KRW. Sales slightly declined compared to the same period the previous year due to production disruptions at automakers caused by the shortage of automotive semiconductors and increased related costs, resulting in an operating loss.

LG Electronics expects the global automotive semiconductor supply issue to gradually ease from the second half of this year but remains concerned about the possibility of an uncertain market environment. Accordingly, the VS division plans to focus its capabilities on supply chain management and cost reduction while actively responding to the recovery in the automotive market to expand sales and improve profitability.

The market anticipates that the automotive components business could provide new growth opportunities for LG Electronics, which has discontinued its MC (mobile communications) business. Analyst Park Kang-ho of Daishin Securities said, "Although the VS division's turnaround to profitability has been delayed, we expect it to be possible in the second half of 2022. While production disruptions due to global automotive semiconductor supply chain issues continue, they are gradually easing, and as already secured orders begin to convert into sales, VS sales are expected to enter a growth trajectory."

SK Securities analyst Lee Dong-joo also explained, "From the third quarter, when supply chain issues are expected to be resolved, the market will once again focus on LG Electronics' VS division growth vision. Although short-term sales sluggishness and delayed profitability improvement are regrettable for the future core division VS, the order backlog exceeding 60 trillion KRW and accumulating references maintain long-term expectations."

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