LG Display Reports Q1’08 Results

LG Display: On April 10, 2008, LG Display (LPL) reported Q1’08 results (ending March 31, 2008) based on consolidated Korean GAAP accounting rules. The KRW to USD foreign exchange was set at KRW 998.60 per USD. Here are the highlights:

  • Sales: Down 7% Q/Q and up 48% Y/Y to USD 2,753 million
  • Sales Breakdown by Application: 44% LCD TV, 26% LCD monitor, 24% notebook PC, 6% Other
  • Operating Profit: Up 1.4% Q/Q to USD 891 million
  • EBITDA: Down 10% Q/Q and up 211% Y/Y to USD 1,618 million
  • Net Income: Down 5.7% Q/Q to USD 725 million

CEO of LG Display, Young Soo Kwon:

Last quarter was a notable quarter for us. Our performance was encouraging despite the seasonally slow market condition.

The consequences of a strong performance despite a seasonally weak situation can be dangerous. For instance, if customers of LCD panels foresee price increases there is a tendency to purchase more than they need and bet that the cost of inventory will be less than the expected increases. This “double-booking” activity can temporarily boost sales performance but will have a negative impact on the industry as LCD panel manufacturers will believe that the market is healthy and continue to manufacture at high utilization levels causing an oversupply in the market.

Similar to most other LCD manufacturers, LG Display is dependent on continued strong growth in the LCD TV market. 44% of revenues were derived from LCD panel sales for LCD TV applications. As I have mentioned in other posts before, there seems to be a transition toward more affordable LCD TVs and smaller sizes in the US market. This transition can be an opportunity if the display manufacturers decide to take advantage, but can also be a great challenge if they continue to manufacture larger sizes that are generally more expensive that can lead to an oversupply situation in the US.

  • Display Area Shipped: Down 7% Q/Q to 3.2 m2
  • Average ASP/m2: Down 3% Q/Q to USD 1,339
  • COGS/m2: Down 6% Q/Q to USD 943 (down 2% Q/Q to KRW 932,000)
  • Total Input Capacity: Down 1% Q/Q

These metrics should be looked at in more detail. Bare in mind that exchange rates between the Korean Won and the US Dollar changed considerably in Q1’08. On January 1, 2008, the KRW/USD interbank rate was KRW 960.950 / USD (source: OANDA). The USD depreciated about 3.5% to KRW 995.05 / USD by March 31, 2008. Basing COGS/m2 on the KRW is more accurate as the USD was depreciating against the KRW during Q1’08, making the COGS/m2 performance better than it actually was. The average ASP/m2 decreased at 3% Q/Q while COGS/m2 came down just 2% Q/Q based on the KRW and this means that LG Display became slightly less profitable in Q1’08.

Will this continue? I expect there will be considerable downward price pressure that will appear at the end of Q2 and the beginning of Q3. This would be the point when weakness in US retail for LCD TVs will filter back to the LCD manufacturers. By this time there would be considerable inventory build-up in the supply chain. This is merely my opinion. We will see what happens.

The CFO of LG Display, James Jeong, mentioned that in 2008, the KRW 3 trillion in total CAPEX spending will be mostly used for the company’s G8 facilities and production efficiency enhancement and for existing facilities. His statement does not provide much insight into how much of the KRW 3 trillion (USD 3.07 billion) will be spent on the G8 TFT LCD fab, but it should be considerable. I would estimate about USD 2 billion to be spent on the G8 fab with the initial phase (Phase 1) to have a glass input capacity of 45K/mo and reaching this level by Q3’08.

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