South Korea's LG Display Co Ltd's quarterly net profit more than trebled thanks to strong demand for flat screens, but future earnings will take a hit as the global economic downturn curbs consumer spending. "As high oil prices and the global economic slowdown hurt consumer spending, the impact is becoming visible," Chief Financial Officer James Jeong told an investor conference.
LG, which trails Samsung Electronics Co Ltd in liquid crystal displays, said prices for its LCD screens are likely to fall by the low-teens in percentage terms next quarter, having slipped 5 percent in the last.
Jeong said the firm's margin on earnings before interest, tax, depreciation and amortisation (EBITDA) could fall to "around 30 percent" in the third quarter, from 38 percent in the second quarter and 39 percent for January-March. Analysts had expected a downturn to hit the sector at the end of the year, but they say that slowdown could come sooner and last longer.
"LG Display hit the peak this quarter but is expected to struggle until the first quarter of 2009," said Lee Sung-joon, an analyst for SK Securities. "The downturn trend will continue throughout this year." Despite concerns about slowing demand and falling prices, LG Display said it will boost its spending plans for this year to 4.5 trillion won from 3 trillion as it tries to stay competitive.
Shares in LG Display, valued at around $12 billion on the market, fell more than 6 percent on Wednesday to their lowest in more than a year on a flurry of recent analyst downgrades. Earlier this week, Lehman Brothers predicted monitor panel prices would drop by nearly 40 percent and TV screen prices by 30 percent through the first half of 2009.
LG Display reported a 759 billion won ($738.3 million) net profit in the second quarter to June 30, in line with a forecast for 752 billion won from ten analysts surveyed by Reuters.
The figure is close to the company's record quarterly profit of 760 billion won posted in the fourth quarter of 2007, and is up from 228 billion won earned in the year-earlier period and 717 billion won in the January-March quarter. Second-quarter sales on a consolidated basis came at 4.21 trillion won, up from 3.36 trillion won a year earlier and roughly in line with forecasts.
Drastic investment cuts last year helped the LCD industry enjoy strong earnings in the first half, as tight supplies kept prices steady at a time when sales are usually slow.
Anticipating a slowdown in the television market, flat screen makers turned over some of their manufacturing capacity to PC and notebook panels, but growth will not be enough to absorb the extra supply, analysts said. Taiwan's top LCD makers, AU Optronics and Chi Mei Optoelectronics Corp, may cut output to stabilise prices, local media reported last week.
"I think oversupply issues will probably abate by the second quarter 2009 or even sooner if economic conditions improve faster," said John Soh of Goodmorning Shinhan Securities. Adding to concerns about oversupply is the prospect of several new production lines from LCD makers in South Korea, Taiwan and Japan next year. LG Display shares fell 11.8 percent in the second quarter versus a 1.7 percent loss in the benchmark KOSPI.
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