LG's U.S. Subsidiary Proves Golden Goose After All

LG Electronic¡¯s U.S. subsidiary Zenith, which has been held up as an example of a failed takeover for a decade, is now earning handsome profits for its parent company in Korea. In 1995, LG Electronics acquired the TV maker for US$500 million to advance into the North American market. But Zenith initially proved a drag for LG because the electronic manufacturer went into the red, losing out in competition with Japanese firms.

Now the tide has turned. According to a senior LG Electronics executive, Zenith is now making handsome profits on the back of the digital TV boom in North America. Zenith owns a source technology dubbed VSB which is essential for making digital TVs in North America, and manufacturers must pay US$5 per TV to Zenith for using the technology.

Sales of digital TV are growing rapidly in North America after the U.S. government made it mandatory for TV stations to broadcast digitally from the year 2009. Zenith recorded $25 million in sales last year, and the figure doubled to $50 million this year without requiring any further investment. ¡°Zenith has earned almost no profit over the last several years,¡± LG said. ¡°But now it is generating large profits. It¡¯s like ugly duckling turned into a golden goose.¡± The digital TV market is expected to grow over 30 percent next year, making Zenith¡¯s upward march pretty much unstoppable. LG says Zenith will contribute to enhancing the brand value of LG TVs because of its source technology.

source