Industry insiders and the financial markets are seeing changes at LG Electronics, evidenced by its turnaround performance in the cell phone sector in the third quarter. Concerns have been dispelled about the phone unit's unstable seesawing from surplus to deficit, a result of its failure to turn out mega-hit products and its dependence on smaller output of several models. LG's results in the third quarter prove that the firm has acquired the ability to maintain stability and not be swayed by external factors, an analyst said.

LG Electronics’ Chocolate phone, the L704i HSDPA 3G phone, to be released through Japan’s NTT DoCoMo on Friday. The Chocolate hit series has sold 14 million units around the world./Newsis

LG Electronics had been reaping profits in the high-end cell phone market, but its profitability worsened sharply when it bumped up production of low-priced models to capture a bigger market share. In 2005 and 2006 it sold more than two million cheap phones yet recorded a near-zero operating margin.

The situation reversed in the most recent quarter. LG Electronics sold more than 2.3 million low-priced phones but posted an 8.4 percent operating margin for the period. The company sold profitable high-end cell phones in great numbers while, due to reduced production costs, reaping profits from cheap models, which the company produced as part of its efforts to strengthen brand recognition

LG Electronics integrated its cell phone production facilities in Seoul and Cheongju into one in Pyeongtaek. It also introduced a "global platform" strategy to focus on the development of one hit model and market it in two versions -- code division multiple access and the European-style global system for mobile communications. Until then, the company had produced and sold CDMA and GSM phones separately.

The Chocolate and Shine phones were the successful fruits of that strategy. The company produced and marketed CDMA, GSM and 3G versions of the Chocolate phone. In Central America, the company even released a cheaper but tempting version of the Chocolate without some expensive functions. Total sales of the Chocolate phone have topped 14 million units, making it best selling Korean phone ever. The Shine phone, meanwhile, has sold more than four million units.

With the "one platform, many products" strategy, LG Electronics has succeeded in creating an efficient structure to increase sales while reducing the number of platforms. Fewer platforms help the company reduce its R&D costs of W1.5~3 billion (US$1=W918) per model, a company spokesperson said. Production costs are also reduced as the same components are used in several models, and productivity is enhanced with workers getting skilled by continuously working on the same model.

Producing several models on one platform is a dream of many manufacturers, but it's no easy feat. The strategy works only when the company has a hit model based on an excellent design and quality edge. The secret to LG Electronics' turnaround is in the company's efforts to strengthen its design and development division. Over the past three years the company has grown its design staff five-fold and doubled its R&D staff. It developed one competitive product with superior design and quality and produced sister models from that mega-hit. In doing so, the company slashed its production costs and boosted its profitability.

After selling 20 million cell phones in one quarter for the first time, the company aims to sell 100 million cell phones next year. If LG sold 100 million cell phones it would mean it has started to benefit from the economies of scale that the world's top three cell phone producers enjoy, said Choi Hyun-jae, an analyst at Tong Yang Investment Bank in Seoul. That would mean it has secured equal footing to compete with the three giants in earnest, Choi said.

(englishnews@chosun.com )