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    A066570   KR7066570003

LG ELECTRONICS INC.

(A066570)
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Expanding From Autos to Appliances and Sex Toys, the Chip Shortage is Far-Reaching

04/30/2021 | 06:00am EDT

By Eun-Young Jeong in Seoul and Dan Strumpf in Hong Kong

The global chip shortage hobbled auto makers world-wide. Now, other industries are feeling the squeeze.

It has hit makers of home appliances, heavy-equipment, servers and sex toys. It is confounding multinationals to startups. Even companies that don't use chips as their core business, such as freight operators and retailers, find themselves affected. The scarcity means higher price tags for consumers, longer waits for goods, empty store shelves and swaths of the business world racing to secure whatever supply they can.

The chip famine first hit auto makers late last year after they underestimated demand during the pandemic. But as car makers ramped up orders, other industries saw the components queue lengthen and increased their own purchasing. Demand for consumer electronics stayed hot. Now chip makers can't keep pace, driving up prices for parts, thinning out supply and spurring panic buying.

The tight supply for many chips is likely to persist through this year, companies say. The shortfalls are creating missed business opportunities, just as the global economic recovery is gaining momentum after a pandemic-led slowdown.

They have also contributed to escalations in the cost of raw materials for electronic goods in recent months. An index measuring the price of inputs for electronics companies in March soared to the highest level recorded in more than two decades of tracking, according to IHS Markit, a market researcher.

The chip crunch has spared few companies, even some tech giants that were mass buying to cushion themselves from the U.S.-China trade fight. Microsoft Corp. said hardware sales were dented by the shortage. Apple Inc. is likely to see sales fall by a higher-than-typical amount in the current quarter, particularly among its tablets and laptops, said Luca Maestri, Apple's finance chief, on Wednesday.

Many semiconductors cost less than a can of soda. But they are an important manufacturing component for 12% of the U.S. gross domestic product, and reduced supply can boost prices for some categories of products by as much as 3%, according to a recent Goldman Sachs Group Inc. report. The firm estimates that 169 U.S. industries are directly affected, a list that includes boat building, breweries and fabric mills.

The chip shortage is even hitting corners of the economy without direct links to semiconductors. Kansas City Southern, a freight operator, said the semiconductor crunch, forced some car-making plants in Mexico to halt production. Demand to move vehicles and auto parts dried up, causing an 18% drop in first-quarter freight volume compared with the previous year. Big-box retailer Costco Wholesale Corp. said it is having issues securing TVs, computers and other internet-connected home gadgets.

Semiconductors are a $442 billion industry, according to market research firm International Data Corp., making it larger than the GDP of Ireland or the market cap of Walmart Inc. Total semiconductor unit shipments are expected to increase 13% this year to a record 1.13 trillion units, according to IC Insights Inc., a semiconductor-market researcher. Shipments grew 3% in 2020.

The types of semiconductors where supply is most squeezed are lower-end chips common in electronics and appliances that consumers splurged on during the pandemic, though even more cutting-edge chips are increasingly in short supply, chip makers said.

Strained chip supplies have pushed Whirlpool Corp. to switch production lines frequently, the company said, enabling it to churn out various products based on which components are on hand that day. Chief Executive Marc Bitzer told investors last week that the Michigan-based manufacturer is raising prices by 5% to 12% in various countries because of "rapidly rising inflationary pressures" from the shortage of chips and other raw materials.

LG Electronics Inc., one of the world's largest appliance makers, hasn't experienced manufacturing issues. But it is reviewing production plans, anticipating that the semiconductor shortage will last through the end of the year, said Don Kwack, head of the company's home appliance and air solution business unit.

"In all, 1,000 different types of chips are required across all our home appliances," Mr. Kwack said.

Recently, Petoneer, in Shenzhen, China, has been forced to suspend sales of some pet gadgets including a robotic cat toy after its chip supply ran out. Sales executive Karl Peng said the company's research-and-development team is exploring whether it can swap in types of chips that are more readily available.

But numerous types of other semiconductors, especially microcontrollers -- an inexpensive chip used widely in electronic devices -- are almost nowhere to be found.

"For some products, if we do not switch to another solution, we have no idea when we can have the chips to make them," Mr. Peng said.

San Francisco-based Crave Inc., a sex-toy company, is redesigning half of its product offerings this year to hedge against the chip shortage and to carry out scheduled product upgrades. With a typical product containing 30 different electronic parts, including semiconductors, Crave began stockpiling chips late last year as lead times started increasing, said Chief Executive Michael Topolovac.

"We're sort of bracing for at least a year and, theoretically, beyond two years," Mr. Topolovac said.

South Korean data server manufacturer DS&G Co. has seen its lead time for the chips they buy more than double to 22 weeks from about 10 weeks this year. Now, DS&G may not be able to complete customers' orders starting as early as May, Chief Executive Seo Joung-youl said.

Chicago-based Bartesian Inc., which produces countertop machines that make cocktails from Keurig-like capsules, began in February ordering chips that would cover manufacturing needs for tens of thousands of more products than it projected it would sell this year. But even with that forethought, Chief Executive Ryan Close worries he won't get enough components for his product.

"We're not one of the big guys," Mr. Close said. "We're a small startup."

Indiana-based LHP Telematics LLC, which sells to heavy industrial vehicles, remains profitable despite not being able to fulfill thousands of purchase orders from customers because some of their contract manufacturers can't get enough chips to build devices.

"Instead of making a nice bit of profit now, we're squeezed, and it all just depends on if [things] get worse," said Travis Jones, the company's CEO.

During the pandemic, California-based Vinotemp, which mainly makes wine fridges and coolers, saw a sales boom for its new product line of dishwashers, ranges and microwaves. This happened despite freight issues and other surges in raw-material prices.

But now chip availability is a headache. On Monday, the company received an email from its contract manufacturer in China saying that it had stopped making some wine fridge models because it couldn't secure the chips needed, said India Hynes, Vinotemp's CEO.

"I don't know how deep it's going to go," Ms. Hynes said.

Write to Eun-Young Jeong at eun-young.jeong@wsj.com and Dan Strumpf at Dan.Strumpf@wsj.com

(END) Dow Jones Newswires

04-30-21 0800ET

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COSTCO WHOLESALE CORPORATION -0.11% 429.34 Delayed Quote.14.05%
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IHS MARKIT LTD. 1.58% 118.82 Delayed Quote.30.07%
KANSAS CITY SOUTHERN 0.10% 268.03 Delayed Quote.31.19%
LG CORP. 0.64% 94800 End-of-day quote.-1.24%
LG ELECTRONICS INC. -0.63% 156500 End-of-day quote.15.93%
MICROSOFT CORPORATION 0.40% 285.95 Delayed Quote.28.10%
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WALMART INC. -0.15% 142.31 Delayed Quote.-1.11%
WHIRLPOOL CORPORATION 0.60% 223.52 Delayed Quote.22.74%
WHIRLPOOL S.A. 0.91% 8.88 End-of-day quote.8.82%
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Financials
Sales 2021 71 987 B 62,6 B 62,6 B
Net income 2021 2 381 B 2,07 B 2,07 B
Net Debt 2021 2 960 B 2,57 B 2,57 B
P/E ratio 2021 11,5x
Yield 2021 0,81%
Capitalization 26 785 B 23 252 M 23 276 M
EV / Sales 2021 0,41x
EV / Sales 2022 0,36x
Nbr of Employees 38 119
Free-Float 69,0%
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Mean consensus BUY
Number of Analysts 29
Last Close Price 156 500,00 KRW
Average target price 208 344,83 KRW
Spread / Average Target 33,1%
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Managers and Directors
Brian Kwon Chief Executive Officer
Il-Pyung Park Chief Technology Officer
Jong-Sang Lee Vice President, Head-Legal & Compliance Support
Joon-Geun Choi Independent Director
Dae-Hyung Kim Independent Director
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