LG seeks cash to save its smartphone biz

LG Electronics is planning to raise 1.0621 trillion won (£588m) in a shares issue so it can pour funds into core businesses like smartphones and take on new staff, its board said today.

The 19 million new shares will be issued at 55,900 won (£30.96) each, a 9 per cent discount to their closing price on Thursday of 61,600 won (£34.12).

An earlier market rumour that the company was planning a trillion won rights offering had sent its shares down by 13.73 per cent when the Korean exchange closed at 9am GMT, wiping around £620m off its market value.

Shareholders are concerned that a new rights issue will dilute the value of the stocks they're holding, which haven't been doing all that well this year.

Since January, shares have lost more than 40 per cent of their value, dropping from approximately 120,000 won to just over 70,000 won before today's fall.

After rumours of the share issue had circulated, the Korea exchange asked for clarification, leading LG to announce the move as part of a plan to invest in key businesses like smartphones and "proactively secure talented workers".

LG has lost market share in the smartphone sector as competitors including Samsung and Apple soar ahead. Most recently, the company announced third quarter sales operating income for all its handsets had fallen 9.5 per cent on the same period last year and 16 per cent since the second quarter.

It's the sixth consecutive quarter the unit has done badly, as LG hasn't managed to release a smartphone that can pull consumer interest from the almighty Jesus-mobe or popular Android offerings from Samsung and HTC, so its income is largely from other mobiles.

Meanwhile, it is the same old story for TVs at LG as it is elsewhere. Like most other major electronics firms dealing in tellies, LG hasn't been shifting the same number as it used to before the global downturn dampened appetite for big ticket purchases.

Piling more cash into its loss-making mobile business will be a big gamble for LG. Although the company is the third-biggest handset vendor in the world, according to IDC, its market share has fallen from 8.1 per cent in the third quarter last year to 5.4 per cent in Q3 2011.

In smartphones, the company doesn't even figure in IDC calculations, as Apple, Samsung, Nokia, RIM and HTC eat through 73.6 per cent of the market before "others" get a go at the remaining 26.4 per cent. ®