When Will the Turnaround Come for Samsung and LG's Auto Parts Business Amid COVID-19 Setbacks?

[Asia Economy Reporter Changhwan Lee] Due to the impact of the novel coronavirus infection (COVID-19), Samsung Electronics and LG Electronics are experiencing poor performance in their automotive electronics businesses, which they are promoting as future growth engines.

As the future vehicle market, including electric vehicles, hydrogen vehicles, and autonomous vehicles, expands year by year, there are calls for a rapid normalization of related businesses.

According to the electronics industry on the 15th, Samsung Electronics' Harman division recorded sales of 1.54 trillion KRW and an operating loss of 90 billion KRW in the second quarter of this year. This marks a consecutive second-quarter loss following the first quarter's operating loss of 190 billion KRW.

Samsung Electronics officially entered the automotive electronics business by acquiring the U.S. automotive electronics company Harman in 2016. Automotive electronics refer to all electrical and electronic devices installed in vehicles.

Samsung's entry into the automotive electronics business is due to the automotive market being reshaped into future vehicles such as electric and autonomous vehicles, which significantly increases the use of automotive semiconductors and small electrical components. According to market research firm Strategy Analytics (SA), the global automotive electronics market size is expected to grow from approximately 240 billion USD in 2015 to 300 billion USD this year.

Harman had been steadily growing since Samsung's acquisition but recorded a loss in the first half of this year for the first time. However, this is evaluated as a temporary impact due to a sharp decline in car sales caused by COVID-19. Accordingly, insiders and outsiders of Samsung expect Harman's business to normalize from the second half of the year.

Samsung Electronics stated, "Despite some recovery in demand for consumer products, Harman continued to post operating losses amid the global automotive industry's downturn," adding, "We expect performance improvement in the second half due to an improvement in the automotive industry and expanded sales of consumer audio products."

LG Electronics' automotive electronics business is in a worse situation than Samsung Electronics. In the second quarter of this year, LG Electronics' Vehicle Components (VS) division recorded sales of 912.2 billion KRW and an operating loss of 202.5 billion KRW.

Compared to the same period last year, sales decreased by 35.9%, and the operating loss increased. Although the COVID-19 impact worsened performance, LG Electronics' automotive electronics business has struggled without posting a profit since 2016. The VS division, along with the Mobile Communications (MC) division, has become a sore spot for LG Electronics, raising concerns about an overall business scale reduction.

However, there is a forecast that the automotive electronics business's operating loss will shrink from the third quarter, starting from the second quarter's bottom. This is because the impact of COVID-19 is diminishing, automotive factories are resuming operations, and automobile consumption is recovering. Insiders and outsiders expect a return to profitability as early as next year.

An industry official said, "LG Electronics' automotive electronics business is facing significant difficulties due to COVID-19 this year," but added, "In the long term, once it turns profitable, it will be the division that can contribute the most to the company's profit improvement."