Declining bottom lines
Sliding prices worry local LCD companies
By Kim Yoo-chul
Samsung Electronics and LG Display, the world’s two biggest liquid crystal display (LCD) panel makers, are under pressure from price erosion, higher inventories and sagging consumer demand for gadgets.
Price is the key barometer to gauge profitability in almost all LCD makers as the industry is volatile and cyclical according to macro-economic moves.
Samsung is falling in terms of profit due to the price decline and decreasing shipments in value-added televisions, triggering a forecast that its LCD division may incur a quarterly loss to the tune of 200 billion won level during the January-March period, analysts and officials said.
``It is likely that Samsung’s LCD division will report higher-than-expected operating losses during the first quarter because of weaker demand amid a seasonally-unfavorable period,’’ said a Samsung source, asking not to be identified.
Samsung was expected to break even in its LCD business, but Sony’s recent decision to buy LCD panels from somewhere else is also sapping Samsung’s profit, according to sources directly involved with the matter.
Sony ended its exclusive tie-up with Samsung after more than seven years as the world’s second-biggest TV maker has been taking TV panels from LG Display as part of Sony’s vigorous outsourcing drives to cut manufacturing costs.
For LCD suppliers, securing big set-makers is crucial as customers can be a cushion for suppliers amid market downturns.
Samsung is to delay the operation of its latest eighth-generation LCD line to produce panels for televisions under the current bearish mood, according to officials.
Samsung spokesman, Song Chul-gyu declined to comment on whether the company’s LCD business will return to the red in the latest quarter as it’s not company policy to talk about earnings guidance.
For the fourth quarter of last year, Samsung reaped just 100 billion won in operating profit in its LCD business ― a year-on-year drop of 81 percent.
LG Display in hot water
LG Display believes its LCD business will be stuck in the red for the second straight quarter.
``For the time being, LG may not see a profit level up with losses expected during the first quarter that ends March 31,’’ said an unnamed LG source, asking not to be identified.
LG spokesman Sohn Young-june admits that prices for its panels to customers are sliding, though he didn’t confirm whether the firm would meet its predictions.
A quarter earlier, LG reported 386.9 billion won in operating losses for the first time in six quarters, from February 2009, data from the Korea Exchange (KRX), showed.
``Although LG’s big losses in the fourth quarter were partly due to the EU’s decision to fine it 330 billion won for involvement in a price cartel, the outlook is very dim in the current quarter,’’ said the LG source.
Its chief financial officer Jeong Ho-young recently said LG didn’t see any imminent turnaround in the quarter as the global LCD industry is heading toward oversupply.
The Korean LCD giants are still waiting to see the best timing for the construction of their latest LCD facilities in China. Beijing approved Samsung and LG to build cutting-edge LCD lines in southern China in December.
``The companies may delay groundbreaking until next year,’’ said a top-ranking industry executive.
Along with Samsung and LG, leading Taiwanese and Japanese LCD makers are also planning to construct their latest lines in China. The LCD industry is said to face the so-called ``2012 problem,’’ referring to the year when LCD panels are predicted to go into oversupply.