profit Archives - Counterpoint

Climate Change Concerns Aid LG Electronics’ Q1 Numbers

The revenue for Q1 2023 stood at KRW 16.26 trillion, a 5.7% YoY decline.
The operating profit of the company declined by 15% YoY.
The revenue from the vehicle solutions segment grew 27% YoY to reach KRW 2.4 trillion.

LG Electronics has generated relatively steady Q1 2023 earnings results thanks to the stabilization of material costs and the continued sales of high-end home appliances. The heat pumps and energy storage devices helped it earn more as the climate change restrictions tightened.

The company’s revenue declined 5.7% YoY in Q1 2023 to KRW 16.26 trillion ($12.75 billion), while the operating profit declined 15% YoY to KRW 1.36 trillion ($1.06 billion) owing to sluggish global demand. Although the profit dropped YoY, it was a considerable improvement over the losses in the previous quarter.

The business portfolio is experiencing growth through qualitative measures, particularly in expanding B2B segments such as vehicle components and system air conditioners. Besides, non-hardware business revenue continues to increase. The vehicle component solutions segment raked in high profits, contributing almost 15% to the total revenue, up from 11% in Q1 2022.

Financial highlights

The consumer electronics segment’s revenue fell 5.5% YoY to reach KRW 11.38 trillion ($8.9 billion). However, the operating profit increased by 92% owing to lower logistics costs, efficient management of raw material supply, improved spending efficiency and active measures to enhance cost structure. The contribution of this segment to LG’s Q1 operating profit rose to 89.7% from 40% in Q1 2022.
The revenue of the vehicle solutions segment grew 27.1% YoY to reach KRW 2.39 trillion ($1.87 billion) driven by high order backlogs and the electric vehicle (EV) boom in the automotive market. Supply chain management improvements for key components, like semiconductors, played a crucial role. The operating profit grew to KRW 54 billion ($42.3 million), compared to the loss of KRW 6.7 billion ($5.6 million) in Q1 2022. Although the segment contributed just 4% to LG’s Q1 operating profit, it is touted as the future growth driver.
Revenue from other businesses, which include business solutions, kept declining YoY to reach KRW5 trillion ($1.95 billion), falling 25%. The operating profit dropped 91% YoY to KRW 85 billion ($66.7 million). The segment’s contribution to LG’s Q1 operating profit was only 6.3% compared to 61% in Q1 2022.
LG Innotek’s revenue grew 10.7% YoY to KRW 4.4 trillion ($3.43 billion). The operating profit decreased by 60.4% to KRW 145 billion ($114 million). This brought LG’s consolidated revenue to KRW 20.4 trillion ($16.01 billion).

Market outlook

Amid declining consumption due to economic downturn concerns, consumer electronics revenue is expected to fall while profits will remain sluggish in the next quarter. The decreasing IT demand will also have negative impacts on yields. The huge order backlog (KRW 80 trillion) and the ongoing transition to EVs will drive the vehicle solutions segment revenue. Based on the high growth within EV markets, it is expected that the EV component business will continue to take up a larger share in the future. A reliable portfolio of in-car infotainment systems, e-powertrain, headlights and unique solutions will maintain LG’s competitive advantage.

LG Electronics is going aggressive on increasing its technological advantage over competitors. This year, the company plans to invest over KRW 5 trillion ($4 billion) in its most significant capital expenditure in 10 years, mainly in the automotive electronics business. This move aligns with the business strategy of focusing on long-term growth and prosperity. The R&D spending has also been increased by 10% this year. LG wants to sustain growth and ensure consistent profitability by proactively and adaptively addressing shifts in demand across various regions and segments. It also aims to expand eco-friendly enterprises in pursuit of revenue growth through energy-efficient and environment-friendly products.

*LG Innotek’s numbers are not included in the total revenue and have been mentioned separately.

Related reports

LG Electronics Operating Profit Stumbles in Q4 2022

The operating profit of LG Electronics* declined by 133% YoY in Q4 2022.
The revenue for Q4 2022 stood at KRW 15.47 trillion, a 1.6% growth YoY.
The revenue from the vehicle solutions segment grew 44.6% YoY to reach KRW 2.4 trillion.

LG Electronics’* total revenue in Q4 2022 was KRW 15.47 trillion ($11.37 billion), a mere 1.6% YoY growth. This brought the company’s 2022 total revenue to KRW 64.71 trillion ($50.3 billion). Although LG registered a positive YoY revenue growth during Q4 2022, the operating profit declined by 133% YoY, causing losses of KRW 104 billion ($76.6 million). This was primarily due to increased marketing expenditure, increased raw material prices, and currency devaluation compared to the US dollar. The business was also impacted by the extension of geopolitical risks in Europe and interest rate hikes in many nations to reduce inflation. The worsening macroeconomic conditions weakened consumer sentiment, leading to a decline in consumer electronics sales. The vehicle solutions segment stood as a bright spot due to strong demand and order backlog from auto OEMs.

Financial highlights

The consumer electronics segment’s revenue fell 5.5% YoY to reach KRW 10.88 trillion ($8 billion). Its operating profit decreased by 127% due to rising marketing costs and fixed cost burdens. The contribution of this segment to LG’s Q4 revenue declined to 70.2% from 75.5% in Q4 2021.
Revenue from the vehicle solutions segment grew 44.6% YoY to reach an all-time high of KRW 2.4 trillion ($1.76 billion). This was primarily due to increased OEM orders and an improved automotive supply chain situation globally. Negative external factors like logistics costs and raw material supply chain are easing. Despite increasing expenses associated with running additional manufacturing subsidiaries, profits improved on increased sales. Vehicle solutions accounted for 15.5% of the total revenue in Q4 2022.
At the end of 2022, the vehicle solutions segment had a backlog amounting to KRW 80 trillion ($59 billion), underscoring the company’s position as a key supplier to the global auto industry. Infotainment accounted for more than 60% of the backlog value, xEV parts for 20%, and safety and convenience components for the rest.
Revenue from other businesses grew by 6.7% YoY in Q4 2022 to reach KRW 2.2 trillion ($1.62 billion). But low demand for IT products and global economic headwinds sent the operating profit down by 195% YoY.
LG Innotek’s revenue grew 14.4% YoY in Q4 2022 to KRW 6.5 trillion ($4.8 billion). The operating profit decreased by 60.5% to KRW 169 billion ($124 million). This brought LG’s consolidated revenue to KRW 21.8 trillion ($16.06 billion).

Market outlook

The anticipation of growing inflation, geopolitical uncertainties, mass layoffs and significant concerns about the economy weakening during the initial months of 2023 is likely to further impact LG’s profit in Q1 2023. LG aims to increase profitability by proactively cutting expenses and optimizing cost structures. LG stated that it would continue to improve the competitiveness of its premium goods like OLED TVs. Despite challenging financial conditions, LG is likely to invest around KRW 22 trillion this year in developing new sectors and broadening its business portfolio.

The vehicle solutions segment has the highest potential to earn high profits in coming quarters owing to a robust strategy to secure long-term product orders and the current order backlogs, despite uncertainties around vehicle demand in 2023. Besides, due to the high demand for infotainment and xEV components, this segment is likely to grow further, leading to a higher share of LG’s revenue.

*LG Innotek’s numbers are not included in the total revenue and have been mentioned separately.

Good Show in Vehicle Solution, B2B Segments Helps LG Fight Macro Headwinds

Q3 2022 revenue increased 8% YoY to reach ₩16.12 trillion helped by higher sales of vehicle solutions.
Vehicle solutions revenue jumped 46% YoY during the quarter, helped by the improved global semiconductor supply and increased auto production in China.
Operating profit increased 33% YoY to reach ₩0.79 trillion.

LG Electronics (LG) reported an 8% YoY growth in Q3 2022 revenue to reach ₩16.12 trillion despite considerable macro headwinds but helped by higher sales in its vehicle solutions and business-to-business segments. Quarterly gross profit rose 5% YoY to ₩5.05 trillion while operating profit grew sharply by 33% YoY to reach ₩0.79 trillion.

During the quarter, investor sentiment was weak due to a steep devaluation of the South Korean won against the US dollar, hurt by strong economic headwinds. The Korea Composite Stock Price Index (KOSPI) fell 6.5% in Q3 2022, which negatively affected LG’s performance.

Financial highlights:

Revenue from the consumer electronics segment fell 1% YoY to ₩11.19 trillion due to increased logistics costs and lower demand for premium products like TVs. This segment contributed to 69% of total revenue during the quarter.
Among all the segments, vehicle solutions was the best performer. The segment’s revenue jumped 46% YoY to ₩2.35 trillion during the quarter helped by the relative improvement in the global semiconductor supply chain. The segment accounted for 15% of the company’s total revenue. China faced a lot of factory shutdowns in the preceding quarter due to regulations related to the COVID-19 pandemic. As factories reopened in Q3, there was an increase in production which helped meet the heightened demand for electronics components in the automotive industry. This, combined with an improved cost structure, helped LG achieve strong growth figures for the period.
Revenue from other businesses grew 23% YoY reaching ₩2.60 trillion. Despite an increase in sales, the profitability of this segment decreased 63% due to lower demand for IT products and higher raw material costs.
LG’s gross profit increased 5% YoY to reach ₩5.04 While the company’s operating profit grew sharply, gross profit growth was relatively muted because of increased market competition, low consumer demand, increased raw material prices, increased marketing expenses and the energy crisis.

Market outlook:

The current global business environment is quite difficult, burdened by rising inflation, supply chain disruptions, geo-political tensions, increased logistic costs and the energy crisis, which have weighed negatively on consumer sentiment across industries. LG plans to prioritize on the development of new software platforms and adjust its channel inventory to overcome the ongoing crisis. LG will focus on its premium consumer electronics products and will likely maintain maximum margins to secure high profits. The company will also apply cost-saving initiatives to reduce raw material costs.

The vehicle solutions segment has the highest potential to expand as the global semiconductor shortage is easing out and OEMs like Honda, GM and Stellantis are working to jointly produce battery cells. Moreover, LG has secured an order worth ₩1 trillion from Tesla to supply automotive camera modules for the Tesla Model 3, Model Y and Cybertruck. These new deals will drive LG’s vehicle solutions segment to a great future.

LG is also strengthening its focus on new technologies like metaverse and robotics. It recently partnered with KT Corporation to expand its AI robot service business. LG will also establish an R&D centre and develop robots for logistics, education and healthcare services. LG’s strategic partnership with TmaxMetaverse will boost development across metaverse solutions and web-based metaverse services. The company will have the opportunity to capitalize on these technologies by the time they mature at the end of the decade, which will help it boost revenue.

LG Electronics Revenue at New Record High in Q1 2022

Revenue reached a new record high of $14.48 billion during the quarter.
Operating profit recovered to a respectable level.
Other businesses registered the highest QoQ revenue growth of 51%.

In 2021, LG shut its smartphone business, which was generating nearly 6% of its total revenue. The closure of this segment has not affected the company much. LG’s revenue increased by more than 16% YoY in Q1 2022 to reach a new record high of $14.48 billion. 46% of this revenue was generated by strong demand for premium products across overseas markets. LG Innotek’s numbers are not included in this analysis.

Revenue from the vehicle solution business grew sequentially. Vehicle sales have been facing a tough time globally due to component shortages but LG is benefiting from the slight rebound. It has also signed deals with leading auto OEMs like Mercedes-Benz, to whom it will provide ADAS and cockpit solutions. Besides the electronics and vehicle solution segments, LG’s other businesses also witnessed growth in Q1 2022. There has been a sustainable growth in the sales of products for the B2B segment. Moreover, LG’s energy-related solutions (LG Chem) business, which has been included in other segments, contributed to a steep revenue rise. Price hikes of certain high-demand products also contributed to the high revenue generation during Q1 2022.

The revenue could have been more in the absence of the latest COVID-19 lockdowns in China and the Russia-Ukraine war. Also, the restricted supply of a few key raw materials and increased logistics costs negatively impacted the production.

Q1 2022 Financial Highlights

Revenue from the consumer electronics segment stood at $10.03 billion, an increase of 3.2% QoQ. This segment contributed to nearly 69% of the total revenue.
Revenue from the vehicle solutions segment stood at $1.56 billion, an increase of 13.3% QoQ. This segment contributed 10.8% of the total revenue. By strengthening business risk management and continuously improving the cost structure across products, LG reduced this segment’s losses by 33% in just two quarters.
Revenue from other businesses reached $2.89 billion, an increase of 49% QoQ. This huge increase was due to the transfer of LG’s electric battery business to this segment from the vehicle solutions segment.
LG’s gross profit reached $4.93 billion, a 28% QoQ increase. Gross profit was down during the last quarter due to supply chain disruptions following COVID-19 and increased raw material prices.

Market Outlook

LG Electronics’ future looks promising with the adoption of newer and advanced technologies across segments. Technologies like Plug-in for Intelligence Equipment (PIE) and Machine-learning based Vision Inspection system (MAVIN) are helping the company to minimize material loss and logistic delays. All these developments will have a positive impact on the coming quarter’s financials.

In the vehicle solutions segment, we expect to see a rise in business as demand for smart car technology combined with increased demand for in-vehicle connectivity is increasing. Being a leader in this segment, LG will leverage its position by forming various JVs and partnerships that will boost its future revenue generation from this segment. Apart from providing hardware solutions for automotive, LG is also entering the automotive software solutions space with its recent acquisition of TISAX and Cybellum.

Apart from the electronics and vehicle solutions segments, developments in LG’s other segments like energy storage and sales have been noteworthy. Recent partnerships for energy solutions have provided the segment with the necessary boost. Moreover, the increasing demand for EVs will only help the energy solution segment to grow from this point onwards.

Internet Service: Xiaomi’s Key Profit Generator

Beijing, Boston, Toronto, London, New Delhi, Hong Kong, Taipei, Seoul – September 1, 2021

Ten years ago, Xiaomi entered the smartphone market with the slogan “best performance-price ratio”. It has done a good job since then, disrupting the market by offering great budget choices. Xiaomi founder Lei Jun has also claimed that the “comprehensive profit margin” of Xiaomi smartphones would not be above 5%. But as a listed company, Xiaomi surely needs a much higher profit margin to please investors. The answer lies in its internet service business unit.

Since Xiaomi went public in 2018, its internet service has made up no more than 10% of the company’s quarterly revenue, but the unit’s profit margins have averaged at 65.12% through Q2 2021. Moreover, 42.74% of Xiaomi’s gross profit is contributed by this unit, according to Counterpoint Research’s latest report ‘Ecosystem Analysis: Xiaomi Internet & Services Segment’.

Gross Profit Margins of Xiaomi and its Business Units

Source: Xiaomi reports, Counterpoint analysis

Xiaomi’s internet service includes advertainment distribution on its mobile game operation, e-commerce, fintech and other products. Most of Xiaomi’s internet service revenues come from advertisements.

Revenue Share of Advertisements in Xiaomi’s Internet Service

Source: Xiaomi reports, Counterpoint analysis

However, the YoY growth of Xiaomi’s internet service revenue slowed to 19.1% in Q2 2021. The YoY growth for the smartphone and IoT businesses was 86.8% and 35.9% respectively during the same period. The average revenue per user (ARPU), the ratio measuring the efficiency of traffic monetization, has been dropping in recent quarters as well, reflecting the difficulties in making profits from the traffic on its smartphones.

Xiaomi’s Average Revenue Per User Declining

Source: Xiaomi reports, Counterpoint analysis

Stronger regulations on privacy globally have challenged Xiaomi’s current advertisement model. Mobile game developers such as Tencent and NetEase are demanding more revenue share. Xiaomi users too have been complaining of ads and other services on MIUI.

However, Xiaomi is a step ahead of many Chinese smartphone OEMs. It has formed an ecosystem of its various gadgets and home appliances, from smartwatches and smart speakers to air conditioners and dishwashers. Such an ecosystem gives Xiaomi more opportunities to provide value-added services. Yet, except TVs, Xiaomi has not figured out an efficient way to monetize traffic from IoT products.

The ‘Ecosystem Analysis: Xiaomi Internet & Services Segment’ report combs through Xiaomi’s internet service business unit and breaks down the business model to point out the current difficulties and future opportunities in traffic monetization. The report is available here for subscribing clients.

Background:

Counterpoint Technology Market Research is a global research firm specializing in products in the TMT (technology, media and telecom) industry. It services major technology and financial firms with a mix of monthly reports, customized projects and detailed analyses of the mobile and technology markets. Its key analysts are seasoned experts in the high-tech industry.

Analyst Contacts:

Archie Zhang

Follow Counterpoint Research
press(at)counterpointresearch.com

Combined Profits of Chinese Smartphone Brands Grew at 24% YoY in 2018

The combined profits of Chinese brands grew 24% year-on-year (YoY) as the premium segment grew faster in 2018 than the overall market. The likes of Huawei, OPPO, and Vivo were quick to take advantage of the gap created within the premium segment as prices of Apple’s devices soared above US$1,000. This gave Chinese brands a headroom to increase prices of their 2018 flagships. This, in turn, drove up the average selling price (ASPs) for them.

Apple, on the other hand, had record revenues and ASPs in 2018. This is despite its unit shipments declining YoY for the first time ever in Q4 2018. Below are some of the key takeaways from the performance of Chinese brands: –

Pricing Strategy: The ASP of Chinese smartphone brands increased by 14% YoY in 2018. Their 2018 flagships introduced some new features like punch-hole display, ultrasonic in-display fingerprint sensor, super-fast charging, and hardware-based AI capabilities to target the maturing smartphone user base. Additionally, Chinese smartphone brands were aggressive in terms of promotions including upgrade offers, trade-ins, and cashbacks.
Market-specific competitive portfolio: Chinese brands have a good track record of sensing the market trend faster than the competitors. They are delivering world-class competitive products across different price bands, giving consumers enough alternatives for an upgrade. For example, Chinese brands are preferring Huawei Mate series over super expensive iPhones. Xiaomi and OPPO launched new smartphone brands Pocophone and Realme respectively, in the Indian market. The ability to leverage deeper access to the Shenzhen-based manufacturing and supply chain ecosystem is helping Chinese brands to plan their product portfolio much earlier. It also helps them to maintain profit margins across price segments.
Global expansion and growth: Chinese brands are dominating the Chinese smartphone market. However, this is now saturated and driven by replacement users. For growth in 2019, Chinese OEMs are eyeing overseas markets. Huawei and HONOR expanded in markets such as Indonesia, Vietnam, Argentina and Peru with new launches priced higher than previous variants. OPPO entered the European market.

As the premium market expands in 2019, we believe Chinese brands will have a good chance of improving their profits. Targeting replacement buyers with flagships priced at the right levels will help them succeed.

Apple is still No. 1 in profits, Samsung will have to wait for its triple crown

Apple still at top of profit share with 53%, Samsung at 45%, others at…2%

The second quarter of this year ended again as everyone expected. Samsung dominates in volume and revenue with Apple and LG following in order. Looks like there wasn’t anything exciting except for the tiny fact that Samsung’s revenue grew compared to the first quarter while Apple’s revenue toppled. This led to the question: If Samsung tops the market in volume and value what about profit? Profit was the only category where Samsung trailed behind the market leader, Apple so far.

Apple had been so successful in demanding a premium to the mobile operators, the actual B2B value chain purchasers, that it had always enjoyed a hefty profit. But transfer prices of the iPhone dropped below $600 for the first time in 3 years and volumes also shrunk to a low point, a prime opportunity for Samsung to claim its third and final crown.
But it didn’t happen…yet. We’ve calculated that Apple was still at top with 53% profit share and Samsung held 45%, LG 1% and the rest of the industry shared a tiny 1%.

* Apple
Apple reported $35B in revenue and $9.2B in operating profit for the quarter. Of the revenue iPhone took $18B and profit-wise we calculate $5.5B. This is an average 30.5% profit margin through our bottom up methodology for iPhone revenue.
We can’t disclose all our BOM analysis here but I will argue that our calculations are consistent with previous numbers from Apple. The $18B revenue, $5.5B profit for iPhone in Q2 tells us that iPhone revenue was 50% of Apple total revenue and 60% of total profit which has been a trend for almost a year now. iPhone profit margin was 30% while all other products had an average 20% profit, a 10% point difference which has also been a continuing trend.

* Samsung
Samsung again enjoyed a record quarter. The division revenue which is called IM (IT and Mobile) had record numbers, 34.6 trillion Won which translates to $31B. In IM there are tablets, network equipment and PC revenue. If we exclude one by one based on historical numbers, we end up with $25.6B. Again applying our bottom up BOM analysis, we get 18.6% operating profit margin for Samsung’s mobile business which is higher than the 17.7% of the IM division. Samsung’s mobile operating profit is calculated to be $4.7B, definitely lower than Apple.
Our analysts were the first to start calculating profit share back in 2008 and we’d be most eager to announce breaking news if there was any but looks like it’s not time yet.

We anticipate that Samsung’s sales will grow again in Q3 2013 while Apple will have limited growth due to the late launch of new products (iPhone 5S, 5C) so it will be another close call in terms of profit for the two. To offer our predictions for the future, we think in Q4 2013, Apple sales will almost double making Apple the indisputable leader in profit once again. But in 2014 it’ll finally be Samsung’s turn to lead in profits as the scale advantage starts to kick in.

For more information and a free copy of the summary of the profit share report please send us an email to:
info@counterpointresearch.com

Top

Insights Tag： profit

Climate Change Concerns Aid LG Electronics’ Q1 Numbers

Financial highlights

Market outlook

LG Electronics Operating Profit Stumbles in Q4 2022

Financial highlights

Market outlook

Related Posts

Good Show in Vehicle Solution, B2B Segments Helps LG Fight Macro Headwinds

Financial highlights:

Market outlook:

Related Posts

LG Electronics Revenue at New Record High in Q1 2022

Q1 2022 Financial Highlights

Market Outlook

Related Posts

Internet Service: Xiaomi’s Key Profit Generator

Related Posts

Combined Profits of Chinese Smartphone Brands Grew at 24% YoY in 2018

Apple is still No. 1 in profits, Samsung will have to wait for its triple crown

Coverage

Insights

Social media

Contact us

Top

Financial highlights

Market outlook

Financial highlights

Market outlook

Related Posts

Financial highlights:

Market outlook:

Related Posts

Q1 2022 Financial Highlights

Market Outlook

Related Posts

Related Posts

Coverage

Insights

Social media

Contact us

Term of Use and Privacy Policy