Silver lining in economic cloud
LG Display chief declares 3D TV conquest in US
LG Display CEO Kwon Young-soo spoke for about an hour with reporters from Business Focus at his office in Seoul, last week.
The 54-year-old head of one of LG’s most important component-making affiliates put his foot down and claimed his firm’s film-type patterned retarder (FPR) for 3D television is firmly established as standard in China, with the United States and Europe the next targets.
Kwon expects a consolidation among liquid crystal display (LCD) makers of Taiwan next year, the major suppliers for the global market, which will eliminate overcapacity, meaning that combined with a recovery in the TV market, demand for LG Display’s products will increase and their prices will go up.
Kwon said facilities investment will be frozen next year, considering a combination of doubts about a prompt market recovery and precautions, expected of any CEO at a time of uncertainty. _ ED.
By Kim Yoo-chul
LG Display, the world’s second-biggest manufacturer of liquid crystal displays (LCD) is observing developments in the global market prudently yet with a sense of optimism.
While hesitant about increasing investment for LCD facilities next year, the second half of the year will be telling for what happens in the global market in the next few years, said the firm’s CEO Kwon Young-soo in an interview.
LG Group’s flat-screen affiliate plans to invest 3 trillion won or $2.8 billion next year but the company has no plans to build a new LCD factory in 2012, according to its chief executive.
``LG Display will invest a maximum of 3 trillion won next year, including an estimated 1 trillion won for operation, maintenance and facility upgrades,’’ Kwon said.
LG Display’s investment budget of 3 trillion won would be the lowest in four years after LG spent 2.9 trillion won for flat-screen displays in 2008 amid a global economic recession.
``That’s because LG Display doesn’t see a big LCD demand for next year,’’ said Kwon, adding he is uncertain whether the demand for electronic consumer devices will pick up in the seasonally-favorable second half of the year.
``LG Display expects the supply and demand imbalance in the global LCD industry be balanced sometime in the first half of next year,’’ said the chief executive, known to be one of LG Group Chairman Koo Bon-moo’s right-hand men.
LG Display, which competes for the top position in LCD flat screens globally with domestic rival Samsung, recently cut its 2011 capital expenditure plan by around 1 trillion won, or 18 percent, to the low-to-mid 4 trillion won level and is considering a further reduction.
No share sale plan
The chief executive denied market speculation that LG Display may issue new shares, saying the company cash flow was not drying up just despite months-long difficulties.
``It’s totally groundless. Currently, LG Display has no reason to sell new shares,’’ said the CEO.
But Kwon, who also leads Korea’s LCD association, has admitted that the latter half of this year would be tough for its flat-screen business because he hasn’t seen any firm signals for a recovery in demand for televisions.
The LCD industry is highly cyclical according to macroeconomic moves and earnings of almost all LCD makers usually peak in the second half as big technology companies increase their stock ahead of back-to-school and year-end shopping seasons.
``It’s too hard to predict the market outlook for the second half. However, one good sign is that major TV makers plan to sell more low-end and less-pricey television sets, which is positive on increasing demand.’’
Amid economic turmoil, TV demand was weak in Western Europe and North America and Kwon agreed that the TV market has simply stalled. However, he said growth in China will save LG in securing a strong bottom line.
Demand for large-sized displays such as TV screens and computer monitors, which together take up around 70 percent of LG’s revenue, has taken a hit as consumers flock to smaller smartphones and tablets.
LG Display hopes the global LCD industry will see consolidation and any dramatic measures from its Taiwanese rivals will help the entire LCD industry onto a path to recovery.
In parts-making industries such as LCDs and memory chips, where economies of scale are crucial, players naturally seek ways for survival. Mergers and acquisitions (M&A) are one option.
``I’ve heard reports that calls were running high in Taiwan to unify the country’s second-biggest LCD maker AUO and the biggest manufacturer CMI for survival in the volatile and cyclical market and I think that makes sense,’’ said Kwon.
``Even if CMI and AUO are reborn as a single entity, LG Display will be stronger considering LG’s advanced product mix. But I cautiously expect some measures, which will be positive for the global LCD industry, will come from Taiwan.’’
Kwon said partnerships with overseas clients including Vizio of the United States and leading Chinese local TV makers are still safe, though there are some pending issues with Vizio.
``The partnership with LG Electronics, LG Display’s top shareholder, also looks fine. I often consult LG Electronics chief executive Koo Bon-joon. Koo is enthusiastic and speedy.’’
When asked about a plan to start the build-up of its LCD complex in southern China, the chief executive said, ``We need more time to start.’’
FPR 3D & OLED
Kwon said in-house FPR 3D technology has been on an upbeat track in terms of sales and customer service.
He said an announcement with a top-tier TV maker for FPR 3D screens will be made soon, though he declined to disclose the name of the new client.
``LG Display is completely leading China’s FPR 3D market and we have shifted our focus to the United States and initial responses of our FPR 3D techs are very impressive.’’
LG Display is looking to become the biggest 3D screen supplier by the end of the year and Kwon expects FPR 3D to become an industry standard next year.
LG was somewhat late getting into the 3D market but its FPR 3D technology which uses cheaper films is now in motion. Samsung, Sony and Panasonic of Japan are pushing battery-powered 3D technology.
But the Samsung-led technology has raised concerns on sight-related problems and its 3D glasses are more expensive than LG’s.
LG’s FPR camp has China’s leading TV maker Vizio and LG Electronics as its top clients.
``Sony has acknowledged that FPR 3D technology has merits in terms of price and other tech-driven aspects. Sony is gauging the timing to start FPR 3D,’’ said Kwon.
With the firm belief of its technology’s advantages, LG Display will hold a massive gaming event in early September in Beijing, China.
``FPR’s market share has spiked up to 50-60 percent just within five months. I am encouraged as the CEO of the company and that’s because of the full support from China’s leading logistics and outlet channels.’’
LG Display is still skeptical of the marketability of glasses-free 3D products due to astronomically-high prices.
As for next business strategies to beat the current bearish market and to guarantee his firm’s corporate sustainability, Kwon is pushing organic light-emitting diode (OLED) TVs.
OLEDs are brighter and thinner than LCD products. However, the screens are expensive and still have some problems before they can enter a faster and wider expansion mode.
OLED has emerged as a key business for almost all flat-screen makers that are struggling in the crowded and saturating LCD market.
Some Japanese companies formed an alliance to enjoy a first-mover advantage in the highly-lucrative business sector, which is noticeable considering Japan’s edge in key OLED components.
Due to these circumstances, Apple has no major interest in using OLED screens for its popular iPhones and iPads, though Samsung Electronics is steadily introducing OLED digital devices such as the Galaxy S smartphones and cameras.
``LG Display will invest 3 trillion won for its OLED business. However, the investment split will be decided according to market situations.’’
LG plans to debut OLED TVs in the latter half of next year. But Kwon said his company will closely monitor market situations before any critical investment decisions are made on OLED ventures.