LG Electronics indicated that its smartphone volume growth (+20% QoQ to 10.3 mn units) was largely supported by its share gains in Europe and South America but its US presence is still not as strong. This tells us that LGE actually has built the needed scale per platform first through relatively less costly regions, which is one of the reasons why LGE’s 1Q13 margin was better than expected as reported. Also, this could imply that its further efforts to expand its presence in the US going forward (even with added and usually costlier promotions and marketing support) may not result in margin’s sharp ups and downs we saw in recent terms due to this improved scale per platform now.
That said, however, we still think that at least in the next couple of quarters there could be a headwind for its handset margins considering the flagship models in the market from leading players.
LG Mobile will be under pressure from a pick-up in marketing expenses (e.g., entering the US market) and a headwind from ASP competition (due to new flagship models coming out from leading vendors) would likely lead to a sequential drop in its handset margins.