Moody’s Investors Service lowered the outlook for LG Electronics from stable to negative on Thursday, citing the firm’s weakened position in the handset business and the uncertain global economy.
With economic uncertainty leading to weakness in profitability and credit metrics, LG Electronics’ rating further considers the consolidation of its affiliate LG Display, which has also recorded negative operating margins for the past three quarters, according to Moody’s.
“We expect continued volatility in operating profits at LG Electronics, reflecting partly the ongoing weakness in its handset unit and the intense level of competition,” said Annalisa DiChiara, vice president and senior analyst at Moody’s. “Furthermore, LG Electronics will rely on the adoption of Long Term Evolution smartphones and further gain in its 3-D TV market share to restore profitability. But the achievement of both carries significant execution risk.”
DiChiara also said the recovery of its mobile division in the fiscal year 2012 depends on the successful adoption of LTE technology and the firm’s ability to capture a significant share of the market, indicating it will require aggressive action.
“The Baa2 rating continues to reflect LGE’s diversified revenue stream, which derives from its broad product offering and brand equity, evidenced globally, though its profitability is concentrated on its mobile and display-related businesses on a consolidated basis. The rating also considers the company’s leading positions in home appliances,” said Moody’s.
By Cho Ji-hyun (
sharon@heraldcorp.com)
