Three-Line Briefing
- The operating profit gap between Samsung Electronics and LG Electronics in TV, home appliances, and HVAC (heating and air conditioning) has widened to roughly 1 trillion won for two straight quarters this year.
- The divide appears to stem not from a battle over finished-product sales volume, but from differences in premium product mix and the share of B2B HVAC revenue, such as system air conditioners.
- TV panel costs, the exchange rate, and HVAC demand tied to the construction and capex cycle are the key variables that will determine the direction of the gap next quarter.
What's Changing
The fact that operating profit has diverged by nearly 1 trillion won for two consecutive quarters in the same TV, home appliance, and HVAC markets should be read as a signal that the real battleground for finished-product businesses has shifted from market share to product mix. If profit margins diverge even though the two companies show little difference in TV unit sales or refrigerator/washing machine volumes, the remaining variable is product composition. The company with a higher share of premium lines and thicker B2B HVAC revenue from products like system air conditioners is structured to earn more profit from the same level of revenue.
The HVAC business has a fundamentally different profit structure from finished products. Residential air conditioners are locked into seasonal demand, with sharp swings between peak and off-peak periods, whereas system air conditioners installed in buildings, data centers, and industrial facilities command higher contract prices and come with multi-year maintenance revenue, making margins more stable. The company with a larger HVAC revenue share can offset — and more than offset — intensifying competition in the TV segment.
Cost pressure in the TV business compounds this. Panel prices continue to fluctuate amid capacity expansions by Chinese manufacturers, and price competition for finished products remains fierce across North American and European distribution channels. The company with a lower premium mix cannot fully pass on rising panel costs to selling prices, causing margins to erode faster, while the company with a higher share of premium and ultra-large models has relatively stronger defenses.
Numbers in Context
The key point is that the 1 trillion won operating profit gap was sustained for two consecutive quarters rather than being a one-quarter event. If it were a one-off cost factor, the gap would normally narrow within a single quarter — but a similar-sized gap repeating for two straight quarters suggests a difference embedded in the business structure itself, meaning the premium/B2B mix gap is becoming entrenched. The KRW/USD exchange rate is another variable. Both companies derive a high share of revenue from overseas, so a weaker won helps export profitability, but differences in local production/sourcing ratios and hedging policies mean the same exchange-rate range affects reported profit differently for each company.
Stocks to Watch
- LG Electronics - The expanding share of B2B HVAC revenue, such as system air conditioners, lowers seasonal volatility and helps defend margins, positioning it as the beneficiary of this earnings gap.
- Samsung Electronics - Improving margins in the TV and home appliance segment is an urgent task, with expanding the premium mix and strengthening the HVAC business seen as the keys to a reversal next quarter.
- Home appliance component and compressor suppliers - If demand for system air conditioners remains solid, related component and motor supply chains could benefit from increased order volumes.
- TV panel suppliers - As demand for large premium panels is a key variable in the mix competition among finished-product makers, profit and loss could diverge depending on panel pricing power.
Risk Check
- The HVAC business is tied to the construction and capex cycle, so a slowdown in global construction activity could create headwinds by reducing B2B order intake itself.
- TV panel prices remain highly volatile depending on oversupply from Chinese manufacturers, and the gap could narrow during cost-decline periods even for companies with a higher premium mix.
- If the exchange rate reverses toward won strength, the boost to export profitability would be halved, weakening earnings resilience for both companies.
- The possibility that this quarter's gap partly reflects one-off accounting factors cannot be ruled out, so next quarter's results will need to confirm whether this is a structural gap.
Bottom Line
This earnings season reaffirms that, in a period of stagnant growth in finished-product markets, mix — not sales volume — is what determines profit. However, with the HVAC order cycle, panel costs, and the exchange rate all still capable of shifting the direction of the gap next quarter, it is premature to conclude that this divide is now fixed.
LG Electronics: Real-Time Data
The most recent closing price for LG Electronics was 162,100 won (up 9.53% from the previous close), and the signal combining foreign/institutional order flow with news and momentum reads 🔴 Caution. Foreign investors and institutional investors are both negative, warranting caution at this time.
- ▼ Double-sided selling — Foreign investors −1.40 billion won · institutional investors −0.20 billion won, both net sellers
※ Price and foreign/institutional order-flow (supply-demand) data are provided by Korea Investment & Securities (KIS) as of the time of publication.
This article was automatically summarized and analyzed based on the original news source. View Original Article (Yonhap Infomax)
