LG.Philips LCD Co Ltd, the world's second-biggest flat-screen maker, reported a 94 percent fall in quarterly profits on Monday as a supply glut depressed prices. But the company avoided the loss expected by analysts and forecast a recovery this year after prices of liquid crystal displays (LCDs), the most common type of TV and computer flat screen, fell nearly 20 percent in the fourth quarter.
Prices have tumbled because demand for expensive flat-screen televisions has fallen short of the expectations of manufacturers, who are spending more than $40 billion to ramp up production over the next decade.
"We expect the industry supply and demand balance will begin to stabilise in the second quarter and then show signs of strengthening later in the year," LG.Philips's chief financial officer, Ron Wirahadiraksa, said in a statement.
Its bigger rival, Samsung Electronics Co Ltd, predicted this month that supply and demand would balance by the latter half of 2005 but that prices could recover as early as the second quarter.
LG.Philips posted a net profit of 35 billion won ($33.7 million) for the fourth quarter to December 31, better than analysts' forecast of a 13.3 billion won loss.
That compared with a profit of 544 billion won a year ago and 291 billion in the third quarter. Sales fell to 1.9 trillion won from 2.14 trillion won a year ago.
Analysts said the company's shipments had been higher than expected, but it was too soon to call a turnaround in the industry.
"Sentiment about the LCD sector is improving but we still need more time to see when prices will bottom out given the oversupply problems that have affected the sector," said Kim Hyun-tae, a fund manager at Woori Investment Trust Management. "We estimate a bottoming out of panel prices could happen either in the second quarter or the third quarter," he said.
LG.Philips, whose displays range from small panels for mobile products to 46-inch (117 cm) TV screens, said it expected a high-single-digit percent decline in LCD prices in the first quarter. It forecast its margin on earnings before interest, tax, depreciation and amortisation (EBITDA) to be in the mid-teens in the first quarter against 21 percent in the fourth quarter.
Profits are expected to fall 60 percent to 668.2 billion won in 2005, according to Reuters Estimates, after rising 62 percent in 2004.
LG.Philips and Samsung, both based in South Korea, boast nearly half of the market for notebook computer and monitor screens. On a capacity basis, LG.Philips has an 18 percent market share, versus Samsung's 20 percent, CLSA Asia-Pacific Markets said.
Producers in Taiwan such as AU Optronics Corp and Chi Mei Optoelectronics Corp have slowed construction of new plants, but are likely to resume their expansion at some point, depressing the sector's outlook.
AU and Chi Mei, which will announce their results in late January or early February, are expected to lose money or just break even in the fourth quarter, analysts said.