LG smartphone disappearing… LG Electronics’ share price outlook is bright

[이코노믹리뷰=정다희 기자] With the end of the smartphone business, LG Electronics is showing strength. The stock market welcomes the decision to close the business of the MC (mobile communication) division, which has continued to suffer losses for many years. Although there are concerns over temporary cost increases, the fact that the VS (automotive parts solution) division turns to a profit is expected to be a factor that will determine the share price in the future.

Shares are also showing strong strength in LG Electronics' decision to withdraw from the smartphone business.  Source = Newsis
Shares are also showing strong strength in LG Electronics’ decision to withdraw from the smartphone business. Source = Newsis

According to the Korea Exchange on the 6th, LG Electronics showed strength, rising by nearly 4% compared to the previous trading day, and recovered all the declines from the previous day.

LG Electronics held a board meeting the day before and decided to end the smartphone business. The MC (mobile communication) division, which is the smartphone division, has been named as a division that has held LG Electronics’ ankle with an operating loss for 23 consecutive quarters. Meanwhile, in January, LG Electronics publicly announced its intention to reconsider the smartphone business, and the business withdrawal was officially announced the day before.

The official closing date is July 31st. The MC division’s operating losses are reflected until 1Q10 results. Although the size of the specific loss or the cost of withdrawal incurred due to business reorganization has not been disclosed, the R&D personnel related to communication technology remains the company’s internal organization and will be used for IoT (Internet of Things), home appliances, electronic equipment, and robot businesses. More than 40,000 communication standard patents were also decided to remain inside. It is expected that domestic personnel outside the R&D department will be assigned to other departments or moved to affiliates.

The stock market is evaluating the decision to be wise. It is analyzed that the company’s corporate value will also be reevaluated as potential risks to stock prices and earnings disappear as the deficit business is cleared, and the home appliance and VS divisions, which are expected to grow structurally, will be highlighted.

Ko Jeong-woo, a researcher at NH Investment & Securities, said, “LG Electronics’ smartphone business has been a negative factor for earnings and stock prices.” Pointed out.

“We believe that the era in which all companies in the smartphone market are growing is already over. It can be seen that the potential growth potential has been further reduced than in the past.” “Considering the smartphone industry environment where it is difficult to expect a reversal, the withdrawal of the smartphone business is positive. “It was evaluated.

LG Electronics’ share price fell by 2% after the announcement due to concerns over an increase in costs the previous day, as sales decline and one-off costs are expected from the business withdrawal this year. However, some point out that the concern is excessive.

Woo-hyung Yoo, a researcher at KB Securities, said, “The mobile phone manufacturing plant in Vietnam is expected to be used by the home appliance and TV divisions, so the cost is low. In the case of MC personnel, the demand for LG Group electronics affiliates is higher than expected, reducing the fixed cost burden from the conversion of affiliates. It will be,” he explained. He added, “The patent rights held by the MC division can be used as opportunities for profit generation in the future.”

As a factor that will affect LG Electronics’ share price in the future, the turnaround of the VS division was cited. LG Electronics’ VS division has recorded operating losses for the past five years in a row, but it is expected to turn to the black this year as the eco-friendly car market expands.

Lee Jong-wook, a researcher at Samsung Securities, said, “Concerns over cost and sales decline are expected to be resolved starting in July.” “He said.

Ju Min-woo, a researcher at Meritz Securities, also said, “The fixed cost burden or one-off cost will not be large,” he said. “It is desirable to match the investment point with the growth of the VS division and the turnaround of the surplus.”