Press Release

04/19/2006

LG ELECTRONICS REPORTS FIRST QUARTER 2006 EARNINGS RESULTS

LG Electronics (LG), a leader in consumer electronics and mobile communications, announced unaudited earnings results of the three month period ended March 31, 2006. Amount in Korean Won (KRW) are translated into US dollars (USD) at the average rate of three month period in each quarter, which was KRW 977 per US dollar (2006 1Q), KRW 1,037 per US dollar (2005. 4Q), KRW 1,022 per US dollar (2005. 1Q).

LG Electronics (LG), a leader in consumer electronics and mobile communications, announced unaudited earnings results of the three month period ended March 31, 2006. Amount in Korean Won (KRW) are translated into US dollars (USD) at the average rate of three month period in each quarter, which was KRW 977 per US dollar (2006 1Q), KRW 1,037 per US dollar (2005. 4Q), KRW 1,022 per US dollar (2005. 1Q).


Sales and Profit

Sales decreased by 6.2% to KRW 5.8 trillion (USD 5.94 billion) from KRW 6,182 billion (USD 5,961 million) in the fourth quarter of 2005 and 2.7 % compared to KRW 5,959 billion (USD 5,828 million) in the first quarter of 2005. Strong growth in sales in air-conditioners, TV, and mobile handsets has led to 12.9% YoY rise in domestic sales, but exports declined 11.2% QoQ due to seasonally low handset sales in overseas markets.

Operating profit in the first quarter of 2006 decreased to KRW 191 billion (USD 195 million) from KRW 211 billion (USD 203 million) in the fourth quarter of 2005 and from KRW 280 billion (USD 274 million) in the first quarter of 2005. Although Digital Display profitability turned around and Appliance's performance was strong, weaker profitability in mobile handsets business caused the overall decline in profits. Net profit was KRW 160 billion (USD 164 million), up from KRW 83 billion (USD 85 million) YoY and down from KRW 312 billion (USD 319 million) QoQ.

Sales from Digital Appliance Company decreased 5.7% YoY to KRW 1,574 billion (USD 1,611 million) caused by strong Won and expansion of overseas production, which was the driving factor for the 15% growth in global sales. Sequential sales grew 27.0% sales and operating profit rose to 215.8% to KRW 160 billion (USD 164 billion) with operating margin of 10.1%. The Company benefited from strong sales of premium products such as commercial air-conditioners, drum type washing machines and side-by-side type refrigerators in North America and Korea, and innovative cost cutting measures.

Digital Display Company sales increased 2.2% QoQ and 13.6% YoY to KRW 1,423 billion (USD 1,456 million), due to strong demand in Plasma and LCD digital TVs at 13% increase QoQ. The Company's operating profit turned around coming in at KRW 30 billion (USD 31 million) primarily due to improvement in product mix to large size digital TVs and cost reduction efforts. The Company shipped a total of 730 thousand units PDP, 9% more than the previous quarter at 670 thousand units, helped by stabilized A3 Line and high yields.

Sales from Digital Media Company decreased 6.8% QoQ to KRW 764 billion (USD 782 million). Decline in average selling price of audio-video products such as HD type STB and direct TV in overseas market including Russia were the main reason for the downward movement. Despite a seasonally low period for IT products, the Company gained competitiveness in Korea by launching advanced technology products such as dual core notebook PCs and Digital Multimedia Broadcasting (DMB) PDAs, and premium DVD-W product in overseas.



- More -

Mobile Communication Company recorded sales of KRW 2,033 billion (USD 2,081 million), from handsets KRW 1,843 billion (USD 1,886 million), and operating loss of KRW 8.9 billion (USD 9.1 million), from handsets KRW 31 billion (USD 32 million). Total shipments were down 4% QoQ to 15.6 million units, (10.0 million in CDMA, 5.1 million in GSM, 0.5 million in WCDMA) compared to 16.2 million units. Success of the 'black-label' phone in Korea, pushed up domestic shipments 37% QoQ, while exports declined 6% QoQ due to seasonal weakness of overseas operator market. Decline in profitability stems from shipment decrease, product mix deterioration, higher marketing expenditure and accounting change.


Non-operating Items and Cash flow

Gain in foreign exchange income of KRW 75 billion (USD 77 million) due to Won appreciation offset non-operating expense items, which include interest expense of KRW 31 billion (USD 32 million), equity method loss of KRW 12 billion (USD 12.4 million) and others, and so recurring profit reached to KRW 191 billion (USD 195 million) at 3.3% margin.

Net cash flow was KRW 333 billion (USD 340 million), generated by reduced working capital of KRW 290 billion (USD 297 million) and capital expenditure of KRW 103 billion (USD 105 million).


Second quarter 2006 Outlook

In the second quarter 2006, LG Electronics anticipate sales to increase approximately 2 to 3% QoQ to KRW 5.9 to 6.0 trillion (USD 6.04 to 6.14 billion), driven by continued growth in premium product line-ups. Sales in North America and Europe is expected to increase particularly by growth in premium appliance products such as commercial air-conditioners, refrigerators and washing machines, and by expanding production base and multiple distribution channels. Sequential sales growth in Display business is not dramatically high due to seasonality, but sustainable growth in Plasma and LCD TV sales is anticipated ahead of the World Cup, and increased mix of high margin HD PDP to 65% (54% in the first quarter) of total and continued cost reduction efforts should help profitability. Focusing on premium products in audio-video, PCs and digital storage products will support steady rise in Digital Media business. In the second quarter, "black label" series and follow-up models will be launched in Korea and overseas. Positioning in GSM open market in Europe, Asia and Middle East and timely new model launch in WCDMA will be the key for further success in handset business.

Sales and profits by division and financial statements are attached for detailed information.
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