LG aims to make most of profit from new growth engines

LG Electronics Inc., the leading global home appliance maker, aims to generate most of its profit from future growth drives by 2030 as the South Korean company plans to transform into a platform-based tech giant.

LG Electronics on Thursday unveiled a goal of generating 75% of its operating profit and 50% of sales from platform-related sectors, business-to-business (B2B) segments and other new growth drives.

“We will make efforts to make changes to a business structure, which can secure high growth potential and stable profits so that LG Electronics can be more properly valued,” LG Electronics CEO Cho Joo-wan told foreign and local institutional investors and analysts at a forum.

The goal was a part of its Vision 2030 announced in July 2023, which included sales of 100 trillion won ($74.8 billion), average annual revenue and operating profit growth rate of 7%, as well as a sevenfold increase of its enterprise value by then. The company’s revenue edged up 0.9% to a record-high of 84.2 trillion won in 2023 on a consolidated basis.

ON THE WAY TO ACCOMPLISHMENT

The flagship unit of South Korea’s No. 4 conglomerate LG Group plans to expand platform-based businesses, accelerate the transformation of its focus to B2B sectors and strengthen new businesses to achieve the target.

LG Electronics logged an 8% growth in sales in the first half from a year earlier with an operating profit margin of 6%, while quadrupling its corporate value, except for those of its electronics part-making subsidiary LG Innotek Co.

“Over the past year, we have been steadily laying the foundation for achieving our future vision,” Cho said at the investor forum.

“We take pride in creating structural changes and sustainable outcomes in various areas.”

WEBOS, B2B

LG Electronics said its webOS content platform, which provides ads and content, generates additional revenue steam.

The platform installed in millions of LG Electronics devices worldwide was expected to report sales of over 1 trillion won, quadruple those in 2021.

The company aims to expand the webOS service from TVs to automotive infotainment and smart electronics devices. It already signed deals to supply the platform to major global automakers such as Hyundai Motor Co. and Kia Corp.

LG Electronics is set to invest more than 1 trillion won in the platform in cooperation with content providers and the expansion of the customized ad solution business.

The tech behemoth aims to generate 45% of its total sales from its B2B businesses such as automotive electronics, smart factories as well as heating, ventilation, and air conditioning (HVAC). Those B2B sectors accounted for 35% of the company’s revenue in the first half, up from 27% in 2021.

The company has secured an order backlog of more than 100 trillion won for the automotive electronics so far.

Its smart factory division is expected to win deals of over 250 billion won by the end of this year.

CHILLER BUSINESS

LG Electronics is set to lead the high-efficiency and eco-friendly product market based on its technological competitiveness in the inverter and heat pump markets while targeting the chiller sector, which is rapidly growing thanks to increasing demand for artificial intelligence data centers.

The company set a goal of raising sales from the chiller business to 1 trillion won by 2027.

It is in talks with Big Tech companies such as Microsoft Corp. and Amazon.com Inc. to supply chillers after inking a 100 billion won deal to provide the colling machine to a data center in North America in the second quarter.

“The growing AI market inevitably increases data centers,” Cho stressed.

HOME APPLIANCE SUBSCRIPTION BUSINESS

LG Electronics plans to expand the fast-growing home appliance subscription service to bolster its mainstream electronics business.

The company aims to ramp up sales of the business by nearly 60% to 1.8 trillion won this year. The subscription service’s revenue rose 33% to 1.1 trillion won in 2023.

The subscription service, which allows paid customers to use its devices without purchases, in South Korea is predicted to make up 20% of the company’s local sales this year, up from 15% in 2022, despite the shrinking domestic electronics market.

In overseas markets, the business’ sales grew 1.5 times faster than the overall market over the past three years, according to the company.

Write to Jeong-Soo Hwang and Chae-Yeon Kim at hjs@hankyung.com
 
Jongwoo Chon edited this article.