Washing machines are displayed at the home appliance section of a large discount store in Seoul. Yonhap News
Samsung Electronics (005930.KS) and LG Electronics (066570.KS), Korea’s two leading home appliance makers, saw contrasting results in the second quarter. Both companies bore the burden of rising raw material costs amid supply chain instability, including the war in the Middle East. But Samsung Electronics posted a loss, while LG Electronics succeeded in significantly boosting profitability by moving preemptively to cut costs.
According to industry sources on the 2nd, Samsung Electronics’ Visual Display (VD) and Digital Appliances (DA) division posted an operating loss of 10 billion won in the second quarter. This marks a turnaround from an operating profit of 200 billion won a year earlier. The VD·DA division had fallen into losses in the third and fourth quarters of last year, then recovered to profit in the previous quarter, but its profitability deteriorated again after just one quarter. Including its audio subsidiary Harman (400 billion won), the figure stands at around 390 billion won.
VD is the organization that sells TVs, while DA sells other household appliances such as air conditioners and refrigerators. Samsung Electronics explained that although the VD·DA division’s second-quarter revenue increased from a year earlier amid the North and Central American World Cup and the peak summer air conditioner season, operating profit declined as costs rose by a larger margin. Second-quarter revenue rose 3% over the year to 14.5 trillion won, or 19.1 trillion won including Harman, up 7%.
Indeed, in the second quarter, raw material and fuel costs rose sharply due to the war in the Middle East. This was compounded by so-called chipflation, in which the price of memory used in artificial intelligence (AI) appliances surged due to supply shortages. In response, Samsung Electronics appointed President Lee Won-jin as head of the VD division in May and signaled a business restructuring centered on AI and platforms, such as “Samsung TV Plus,” but it has yet to bear fruit.
LG Electronics (066570.KS) experienced the same market conditions, and its second-quarter appliance revenue of 14.9 trillion won was similar to that of Samsung Electronics’ VD·DA division, but its profitability differed. The combined operating profit of its appliance business—comprising the Media Entertainment Solution (MS) division, which sells TVs, the Eco Solution (ES) division, which sells air conditioners, and the Home Solution (HS) division, which sells other household appliances—was 1.14 trillion won in the second quarter. This more than doubled from 500 billion won a year earlier, and the MS division escaped from losses.
Both companies had similar strategies to cut costs through supply chain diversification and production efficiency in response to the burden of rising costs. But according to industry analysis, the difference emerged in the speed of execution, as LG Electronics has a larger share of its business in home appliances than Samsung Electronics. Samsung Electronics has grown its momentum around its semiconductor (DS) division, which achieved the largest quarterly operating profit among all technology companies worldwide, while managing its other businesses, including appliances, only to the extent of minimizing losses. LG Electronics, by contrast, had no choice but to make reform its top priority, as home appliances are its core business.
In fact, LG Electronics implemented voluntary retirement centered on the MS division last year, and in the second quarter it accepted voluntary retirement applications across all divisions, staking everything on reducing labor costs. It has made expansion into the Global South (non-English-speaking emerging markets) such as India, Latin America, and the Middle East a core strategy, expanding local factories to cut costs and increasing sales of high-margin premium products. In North America and Europe, it expanded its premium appliance lineup, including built-in (custom) products. As a result, the MS division’s operating profit margin rose sharply from -4.4% to 4.3% in a year, and the HS division’s from 6.6% to 9.7%.
By contrast, Samsung Electronics had relatively few visible cost-cutting factors such as voluntary retirement or business restructuring, apart from partially reducing low-margin businesses by halting TV and appliance sales in China in May. Its manufacturing AX (AI transformation), including the “AI autonomous factory,” is also known to be focused on strengthening leadership in the supply of semiconductors, its core business. However, like LG Electronics, Samsung Electronics is expanding premium products such as AI appliances, and the VD division is pushing forward with organizational and business reforms following President Lee’s appointment, so profitability improvement is expected to follow that of LG Electronics.
Over the mid- to long-term, both companies plan to boost profitability through new AI businesses such as robotics and data center cooling. Samsung Electronics recently created a dedicated robot business organization, the “Robot Experience (RX) Business Promotion Office,” reporting directly to Roh Tae-moon, president of the Device eXperience (DX) division. It plans to build a humanoid production line in Gumi, North Gyeongsang Province, and commercialize various robots for home, manufacturing, and logistics use.
LG Electronics also newly established the “Robotics Business Center” and a robot data factory (robot training center) reporting directly to President Ryu Jae-cheol. Next year, it will commercialize its self-developed robot “Cloid” and actuator (joint) “Axium.” It also won orders worth 600 billion won for AI data center cooling solutions in the first half of this year, and plans to grow the scale to several trillion won by year-end to fully launch the business.