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LG Electronics to cut $2.2 bln costs as recession bites

Source :Reuters          update : 2009-02-11

South Korea's LG Electronics Inc (066570.KS) is aiming to cut $2.2 billion in costs and expects about a 20 percent decline in sales in dollar terms this year amid the spreading global recession, its chief executive said on Monday.

The maker of mobile phones, TVs and appliances has no immediate plans for job cuts but may eliminate some jobs in the future as it reorganises global production bases, CEO Nam Yong told a news conference. LG has around 82,000 employees worldwide.

As the economic downturn saps demand, electronics makers worldwide have taken drastic measures to slash costs and eliminate jobs. Japan's Sony Corp (6758.T) said in December it would cut a total of 16,000 regular and contract jobs globally.

"Since there's no solution to be found from the demand side, LG will have to look for ways to effectively cut down overhead costs," said Kevin Lee, an analyst at Woori Investment & Securities.

"Cutting headcount won't be easy given the local culture and LG will probably save it as the last resort for an extreme scenario," Lee said.

Large South Korean corporations very rarely announce mass job cuts, preferring to reduce their workforces through attrition and voluntary retirement.

The weak won <KRW=> currency, whose value against the dollar has slid nearly a third from a year ago, has provided LG a buffer in the downturn as it gives the firm an edge in price competition with foreign rivals and boosts its won-based sales.

But Nam warned the advantage could slow LG's efforts to improve competitiveness at a time when global demand was falling sharply.

The U.S. appliance market has declined some 30 percent and overall demand has also fallen by 20-40 percent in key European countries in recent months, he said.

"In dollar terms, we saw sales falling 17 percent in January. Sales fell 20 percent in November. [The figure] for the year is likely to be around that level," Nam said, when asked about the 2009 sales outlook.

Analysts expect LG's sales in won terms to fall only marginally in 2009.

LG is taking steps to cut costs by about 3 trillion won ($2.19 billion) this year by slashing expenses and purchasing costs. But the company would continue invest to enhance marketing and grow new businesses such as solar power, Nam said.

"The global recession is presenting a key opportunity (to grow) in emerging markets," he said, adding that LG's key mobile and TV businesses still had room to expand market share.