LG Elec to spend over $4 bn on capex in 2023, biggest in a decade

LG Electronics Inc. has decided to go bold to widen the technology gap with its rivals, with its biggest capital expenditure of more than 5 trillion won ($4.1 billion) in 10 years this year, pursuing the business wisdom of preparing for long-term growth and prosperity after a recession.

According to LG Electronics’ annual report unveiled on Friday, the company has committed 5.3 trillion won in capital expenditure for 2023 to develop new models and new technologies and improve productivity. This is 28% more than its capex for last year and the largest-ever capex spending since 2013.

The South Korean electronics giant is also expected to bump up its research & development investment for 2023 by about 10% from last year. It invested 4 trillion won into R&D in 2022, up 13.2% from the previous year.

If the company maintains this trend in R&D spending this year, its combined capex with R&D spending is projected to reach about 9.7 trillion won this year.

LG Electronics’ massive spending comes at a time when the company under the direction of Chief Executive Officer Cho Joo-wan is seeking to upgrade and enhance its technological prowess, instead of cutting costs, to overcome challenges during an economic recession and acquire the resources to ride on post-recession expansion.

AUTOMOTIVE ELECTRONICS, HOME APPLIANCES, TV

LG Electronics will spend most capex on the automotive electronics business, its new growth engine, as well as home appliance and TV businesses, which are currently leading the world.

It plans to spend 799.8 billion won on automotive electronics this year, which is 20.7% more than a year ago.

Considering that the auto parts industry plans facility investments based on order backlogs, the latest capex plan indicates that LG Electronics’ automotive electronics division would start generating sales with its existing orders in phases.

LG Electronics has also earmarked 979.3 billion won for the H&A division, its cash-cow business in charge of home appliances. This year’s figure is up 13.9% from the previous year and the biggest investment for a single business unit.

It also plans to inject 324.6 billion won into the HE division, up 20.5% on-year. The division is responsible for the TV business.

The company is expected to use most of the funds in its webOS-based platform business in a bid to develop a new profit-making business model beyond selling TV sets.

The latest investment plan comes as the company is striving to find new growth drivers that can generate stable profits.

Despite the record high sales of 83.5 trillion won last year, LG Electronics' operating profit dropped 12% on-year, underscoring the importance of reinforcing its business with investment focusing on new business models for the future.

Write to Ji-Eun Jeong and Jeong-Soo Hwang at jeong@hankyung.com

Sookyung Seo edited this article.