LG bets on smart electronics

SEOUL: Pasta for dinner? At a touch of a button, LG's glossy

Internet-equipped refrigerator will display a mouthwatering dish with a recipe.

An automatic inventory will show what's inside without opening the door.

It's a fridge with a brain that can place orders to the nearest grocery store

when you are running low on tomato sauce. Not only that. Its 15-inch flat

door-mounted screen can turn into a television, a stereo or even a digital

camera.

LG -- which competes with Samsung Electronics in producing mobile phones, TVs

and refrigerators -- aims to beef up its brand by focusing on sales of high-tech

home appliances that are also more profitable.

"It's improving product quality and brand image and investing

more," said Oh Sung-sik, chief investment officer at Franklin Templeton

Investment Trust Management, which holds LG shares. "Their market share is

also growing."

LG's strategy has paid off. It had record earnings last year and its shares

are at one-year highs after they were relisted in April 2002 as a unit of

holding company LG.

The upturn in LG's mainstay appliance business -- which made up 32 percent of

revenues but 59 percent of profits last year-- comes at an auspicious time. LG's

other businesses -- digital TV, computer monitors and mobile phones -- are

facing increased competition and falling prices.

GROWING MARKET SHARE

LG started as the first South Korean maker of radios in 1958 and began making

refrigerators in 1965. The company later expanded to produce other home

appliances such as televisions and mobile telephones.

The company produced fridges and air conditioners for market leaders such as

Whirlpool Corp and General Electric, but introduced its own brand in the key

U.S. market in the late 1990s.

It's now the world's biggest maker of air conditioners with a 15.4 percent

share, beating rival Matsushita Electric, and is moving fast to grab a bigger

slice of TV and handset markets. Exports take up 70 percent of total sales.

Premium products such as "Whisen" air conditioners, "Dios"

refrigerators and "Tromm" washing machines have already taken the

domestic market by storm. It is introducing a home network system that links

appliances through mobile handsets or the Internet.

LG's latest invention: a vacuum cleaning robot called "Roboking."

Roboking, shaped something between a toy car and a dog, cleans the place on its

own and knows when to return to its charger. An upgraded model will have a

security alarm that can detect strangers in the house.

"LG Electronics has always been in the shadow of Samsung

Electronics," said Yu Chang-eyun, analyst at BNP Paribas Peregrine

Securities. "But having a tough rival has helped LG in many cases. LG is

certainly better than Samsung in new product launch, cost competitiveness and

design."

WORRIES ON OTHER FRONTS

Despite LG's strength in home appliances, its high-tech digital TVs and

personal computer sales face tough times as buyers tighten their belts in the

global economic slowdown.

The display business, which accounted for 43 percent of sales in 2002 but

only a fourth of earnings, is likely to see its profits fall in the second

quarter, due partly to the World Cup that spurred a sales boom in the year-ago

quarter.

LG's handset business, a late-comer to an overcrowded, saturated mobile phone

market, has suffered from the outbreak of the SARS virus in China and heated

competition.

LG is the world's sixth largest handset producer with a 4.5 percent market

share in the first quarter, up from 3.1 percent in the fourth quarter, according

to research group Gartner Dataquest. Samsung had a 10.5 percent share versus 9.3

percent.

The mobile phone business made up 24 percent of sales last year and 26

percent of profit. "Its strong position

in home appliances has compensated for its weakness in the handset

division," said Kang Byung-do, a fund manager at Kyobo Investment Trust and

Management.

CASH COW

Investors are taking notice, especially because LG shares are cheap compared

with competitors.Shares in LG, South Korea's eighth-biggest stock with a market

value of $6.2 billion, trade at a forward price/earnings multiple of 11.2,

compared with Samsung's 10.9, Matsushita's 84.9 and Philips' 44.2, according to

Reuters Research.

"We believe LG is well positioned to show earnings growth and

improvement in its return on equity for the next two years," said Morgan

Stanley in a research note, adding it expects LG's 2003 profits to spike 68

percent to 836 billion won.

LG, which has a 51,300 workforce, plans to invest about 1.8 trillion won

($1.5 billion) in new technologies and plant upgrades this year, up 40 percent

from a year ago.

"The home appliance business has been the company cash cow and allowed

us to finance and expand businesses," LG spokesman Oh Sea-chun told Reuters

© Reuters