LG smartphone shipments soared 28.5 percent to 10.3 million units last quarter, but this wasn't enough to offset falling margins from its TV division.

LG
Nexus 4 helps to increase smartphone sales, but falling TV demand keeps overall profits down. (Credit: Reuters)

The South Korean's 3.2 percent share of the smartphone market is still tiny compared to Apple and Samsung, but launching high-end smartphones like the Optimus G and popular Nexus 4 has helped LG try and keep pace with those in the wake of the big two manufacturers, such as HTC, Nokia and BlackBerry.

LG's mobile business posted a Q1 profit of 133 billion won (£77.8 million), up significantly from the 31bn won it recorded a year ago and 56bn won in the previous quarter.

The company will have benefitted hugely from being chosen by Google to be the manufacturer of its Nexus 4 smartphone, the Android device which met critical acclaim, yet at £280 is considerably cheaper than the £520 iPhone 5 and £510 HTC One.

But impressive smartphone sales weren't enough to make up for an 82 percent drop in profits for its Home Entertainment division, hindered by profit margins slipping from six to one percent, and increased competition in the TV market from Samsung.

Profits fall

The company as a whole saw Q1 operating profits fall 13 percent compared to the same quarter last year, down to 350bn won. Although this beat analyst expectations of 289bn won, it compares poorly to profits of 402bn won a year ago, marking LG's first year-on-year profit decline in five quarters.

First quarter revenues were up 6.8 percent from the same quarter last year, to 14.1 trillion won, mainly due to improved performance of its mobile business.

LG's chief financial officer, Jung Do-hyun, said: "Since the third quarter of last year, market demand for TVs slowed, intensifying competition and driving down prices as a result. We expect that profitability will recover in the second quarter as new models help recover prices."

The company's TV troubles don't yet match the scale faced by Japanese rivals Sony and Panasonic, who are both in the process of downsizing their television businesses due to a fall in demand and a strong yen making international products cheaper for Japanese buyers.

Looking ahead

Looking ahead to the second quarter, LG expects continued success from its smartphone division, with the worldwide rollout of its Optimus L Series 2 in 3G markets, and the Optimus G Pro and F Series in countries with 4G networks.

As for its TV business, LG admits the market will "continue to be stagnant," but expects stronger results in following quarters with the rollout of new 3D Smart TVs and Ultra HD televisions.