Phone sales bright spot in dismal quarter for LG, Samsung

South Korean consumer electronics manufacturers Samsung and LG Electronics both reported significant net losses for their parent companies in the last quarter of 2008, but mobile handset sales were one bright, albeit challenged, segment for both. Samsung, the second largest global handset maker behind Nokia, and LG, coming in third, had record quarters in global handset sales, although the landscape for 2009 will be wrought with challenges.

Samsung’s net loss was its first since it began reporting quarterly results in 2000 as consumers forego consumer electronic purchases in the economic downturn. As a whole, the company lost $14.4 million in the fourth quarter, but cellphone sales remained positive in an otherwise bleak scene. Samsung sold a record high of 200 million handsets in 2008, an increase of 22% from 2007, despite a market-wide 5% contraction in global handset sales.

The company anticipates demand to continue for its cellphone division in 2009, but Samsung’s senior vice president of strategic planning Chi Young-Cho said that the handset market in developed economies including the US and Europe will decline by 10% or more in 2009 to the level it was at in 2004. Sales in emerging markets will slow as well. Samsung plans to focus on expanding its smartphone line to combat the expected decline, he said.

"In the first half of this year, for touch-screen phones, we will expand our lineup and upgrade some of the functions including the user interface,” he said on the conference call. “And for smartphones, expand our lineup and provide various [operating systems] to satisfy the diverse needs of our customers.”

LG, which posted a $487-million loss overall, saw its mobile communications company also reach a company high of $3.3 billion in sales, 34.6% higher than a year earlier. Handset sales made up $3 billion of the total, up 40.3% year-over-year and 16.5% higher than the previous quarter. In total, LG sold 100.7 million handsets in 2008. Sales were particularly strong in Europe and Asia, where LG introduced three new handset models, including a touch screen, camera phone and QWERTY keypad messaging phone. A quarter-over-quarter increase in India also helped Asia’s performance.

Overall for the handset division, however, LG’s operating profit margins declined 8% from 2007 and 11.5% from the second quarter to 5.2% as the company increased marketing expenses to minimize year-end inventory. LG is focused on growing both its premium and smartphone models and its mid-to-low-end mass volume units to continue growth in 2009.