By Kim Yoo-chul
Staff Reporter
The global economic downturn has consumer electronics companies focusing on their core strengths, rather than hedging their bets in multiple arenas as they often do when times are good.
The LG Group is not different and is planning to draw a new structure for its electronics equipment business to maximize production efficiency and improve competitiveness.
According to industry sources, LG Display, the conglomerate's flat-panel manufacturing unit, is expected to absorb the liquid crystal display (LCD) module operations of fellow subsidiary, LG Innotek.
The company trails only Samsung Electronics, its bitter industry rival that is now the world's largest electronics company in the global LCD market. LG Innotek has been the group's producer of monitor modules and tuners.
"The group's decision looks like a 'win-win' situation,'' said Jang Woo-young, an analyst at Shinyoung Securities.
"By handing over its LCD module division, LG Innotek gets additional cash to spend on its new growth engine, which is light emitting diodes (LEDs). LG Innotek needs at least 1 trillion won (about $860 million) to put its LED business on a smoother route, and there also had been worries that the profitability from small- or medium-sized LCD modules would decrease due to the emergence of active-matrix organic LED (AM OLED) technology."
The module business accounted for about 20 percent of LG Innotek's 3 trillion won in revenue last year.
The company has clearly shifted its focus to LEDs, planning to invest around 350 billion won next year to expand its LED plant in Gwangju.
It will also spend 1 trillion to build an LED plant in Paju, Gyeonggi Province, adjacent to LG Display's LCD cluster.
By 2012, LG Innotek plans to generate 1.5 trillion won in sales from LEDs alone.
Industry watchers believe that LG Innotek's "vertical realignment efforts," which seek to achieve cohesiveness between its LED backlighting, wafer, chip, package and module operations, will benefit the company long-term.
An Innotek spokesman said the decision is subject to approval at a shareholders' meeting and the talks are still in the "initial stages."
The potential deal also allows LG Display to save costs in its small- and medium-sized panel division, which has been struggling to compete with rival Samsung Mobile Display (SMD).
LG Display has been generating about 1 trillion won per year in past years from its sales of small- and medium-sized LCD panels, just half what SMD gets in revenue. Last year, the company earned around 700 billion won from its under-10-inch panel business.
"The move will generate synergies between LG Display's LCD business and its module and panel operations," said Choi Seung-hoon, an analyst from LIG Investment.
LG Display representatives were coy about the outcome of the discussions. But industry sources believe the company is looking to put more focus on its comparatively strong medium-sized panel business.