SEOUL, Oct. 16 (Xinhua) -- The South Korean tech giant LG Electronics had its pride hurt once again due to continuing operating losses in its handset and display panel businesses.

The global credit rater Standard & Poor's downgraded on Friday the long-term corporate credit rating on LG Electronics by one notch to BBB-minus, citing operating underperformance in handset and display panel units. One day earlier, Moody's revised down the outlook for the company's Baa2 issuer rating to negative from stable.

LG Electronics, the world's third-largest mobile phone maker and the No. 2 TV manufacturer, has suffered from weak earnings for a long time due to late response to the smartphone boom and soft demand for TVs globally.

The tech firm's operating performance turned into the black in the first quarter this year after posting operating losses over the past two quarters, but market watchers expected the profit to decline sharply in the second half this year owing to the remaining uncertainties in those two businesses.

A local brokerage Shinhan Investment Corp. predicted LG's third- quarter operating profit to stand merely at 18 billion won, down by 89 percent from 158.2 billion won tallied in the second quarter. The earnings forecast was much lower than the average market consensus of 71 billion won.

CONTINUING LOSSES

The S&P cut its credit rating on LG Electronics, citing weak profitability in the company's handset and flat panel units. "We expect LG Electronics group's profitability to remain weak in 2011, mainly due to losses in its handset and LCD panel businesses," S&P said in an e-mailed statement.

The handset unit at LG has posted operating losses since the second quarter of 2010 owing to a sharp decline in handset sales and the late launch of its smartphone products. A local brokerage NH Investment & Securities predicted the mobile communications (MC) division to record operating losses of 73 billion won for the third quarter and 50 billion won for the fourth quarter respectively.

LG Electronics is comprised of four businesses, including the MC division that makes mobile phones, home entertainment (HE) division that produces TVs, home appliances (HA) division that makes refrigerators and washing machines, and air-conditioning and energy solutions (AE) division.

Late response to the smartphone boom has kept the MC division in the red for a long time. "While LG Electronics has made some progress, evidenced by its share in the global smartphone market growing to 5.7 percent in the second quarter, delayed launches for subsequent versions of its Optimus One model may prove detrimental to its competitiveness in the third quarter," Moody's said in a statement.

The display panel business has been in the red as well. The LCD panel business has posted operating losses since the fourth quarter of 2010 because of soft demand and low prices for flat panel TVs globally.

Shinhan Investment Corp. forecast that LG Display, a 38 percent- owned affiliate of LG Electronics, posted an operating loss of 482 billion won in the third quarter. "LG Display is forecast to record its worst quarterly results of all time due to a slump in LED TV sales in advanced nations and widening foreign exchange losses caused by the sharp depreciation of the local currency," said Soh Hyun-cheol, an analyst at Shinhan.

EMERGING HOPE

Despite the continuing losses, hopes were emerging that LG Electronics would regain its old fame as tech giant next year helped by the adoption of long term evolution (LTE) smartphones and gains in the 3D TV market share. "LG's first global LTE smartphone, the Optimus LTE, will be launched for SK Telecom and LG Uplus locally and for Verizon and AT&T in North America by year- end. Its sales are expected to soar from the first quarter of 2012, " said Soh at Shinhan.

The U.S. mobile carrier Verizon planned to expand its LTE network to service 180 million people by the end of this year after launching such service in North America last year. Another wireless carrier AT&T started offering the LTE service last month, with plans to extend the service to 80 million people. Both companies were likely to launch aggressive campaigns to promote LTE smartphones.

LG Electronics, the world's leader in the LTE technology, was expected to benefit from the LTE era. The company was the first to commercialize the LTE in 2007, the first to develop 4G LTE chip in 2008, and the first to realize 4G audio/video calls in 2011. Jefferies & Co. estimated the value of LG's LTE patents at 7.9 billion U.S. dollars, the highest in the world.

"The telecommunications industry is forecast to swiftly move into the LTE technology starting next year globally, especially in the U.S. LG Electronics is estimated to take the leading position in the global LTE smartphone market helped by its LTE technology. LG has around 1,400 patents related with the LTE technology only in the U.S.," Choi Nam-gon, an analyst at Dongyang Securities in Seoul, said in a report.

The HE division that produces TVs were expected to contribute to improved operating performance down the road. "LG Electronics' 3D FPR LED TV is receiving a favorable response and is forecast to become the hottest selling 3D TV during the year-end shopping season," said Soh at Shinhan.

The FPR-typed 3D TV, which was introduced in late 2010 by LG Electronics, was widely expected to expand its market share in the global 3D TV market due to its cheaper prices, easier way of usage and lower costs of production. "Increasing revenues from premium products such as 3D TVs, smartphones, and high-end LCD panels should help sustain LG Electronics group's current business risk profile," S&P said.

（Source:Xinhua）