LG Innotek to join top 5 in component manufacturing
By Kim Yoo-chul
LG Innotek, LG Group's component-making affiliate, is aiming to join the world's top five parts suppliers by 2015 ― a goal viewed positively by market analysts given the steady improvement in sales and profit.
Innotek, now the ninth-biggest component producer globally, is aiming for 10 trillion won in annual sales and a 10 percent profit margin by 2015, spokesman Jung Jae-wook, said Monday.
Last year, Innotek reported 3.5 trillion won in sales on a consolidated basis.
In the same context, Innotek aims to raise the number of "global best-selling" products to 10 from the current four.
The firm leads in manufacturing photomasks, tuners, and substrates used in flat-screens, among others.
For the second quarter of 2010, it posted explosive growth in profit to 86.1 billion won ― a jump of 103.1 percent year-on-year.
Sales during the April-June period soared 104.4 percent to 1.03 trillion won, beating market expectations of 980 billion won.
The price of its stocks rose over 80 percent as of the end of July from January, according to data from the Korea Exchange (KRX).
Analysts say stocks will further be boosted thanks to balanced business portfolios, though some technical corrections are to be expected.
"Attention is focused on whether LG Innotek will jump further in the rankings. Fundamentals and sales are being solidified. The remainder of the year looks good," said Baek Jong-seok, an analyst at a local brokerage of Hyundai Securities, wrote in a report to clients.
"Sales for the third quarter will be around 1.25 trillion won, while the operating profit is expected to reach 95 billion won," he said.
Strong growth in LED business
Buttressing Innotek's growth is explosive growth in demand for light-emitting diode (LED) applications.
Flat-screens adopting LED backlights are sleeker, more energy-efficient, while providing more natural images than those lit by traditional cold cathode fluorescent lamps or CCFLs.
As more consumer electronics makers are rapidly bolstering portfolios of LED-backlit products to find next revenue sources, the market for such products has been rapidly growing, giving a better chance to related component makers such as Innotek.
The company has already reached economies of scale by merging with another of LG Group's component-making affiliates ― LG Micron, last year.
In addition, Innotek has handed over its small-sized LCD-making business to LG Display, which is another parts supplier at LG Electronics, in a move to realize "vertical integration" to LG Group's LED-related business through a division of work ― TVs from LG Electronics, panels from LG Display and components from LG Innotek.
LG has been pushing to reduce the production costs for LED-backlit LCD televisions, which are widely expected to become the next leaders in TVs.
LG Electronics' strategy is mostly dependent upon the production prowess of Innotek in LED chips.
Its LED unit reaped 285 billion won in sales during the second quarter, accounting about 30 percent of the total, helped by a higher demand for LED BLU and packages for light bulbs.
"Innotek has doubled the amount of investment this year to 800 billion won from last year’s 400 billion won to further drive up the LED-business," said Jung at LG.
He added it was setting a goal to grab 10 percent global share in LED packaging sector with its annual sales reaching 1.5 trillion won by 2012.
"Production yields are reaching a stable level," Jung said.
The firm has realized the integration of the LED business from wafers, chips, packages and modules. Innotek’s Jung said applying cutting-edge technologies will help bring down the costs.
"Now, we are seeing a business-to-business (B2B) market in LED light bulbs. We've begun operating our LED line in Paju on the outskirts of Seoul in order to respond better to growth in demand," the spokesman said.
Innotek representatives say the improvement of its LED business will make it possible to achieve this year's sales goal of 4 trillion won.
When asked about emerging concerns of oversupply in the global LED chip sector, they disagreed. "It's too early to talk about oversupply. Supply is still tight. An oversupply in the sector is possible but after 2012," said an executive, asking not to be identified.
"The global LED market is on an upswing," said the executive. U.S. investment bank JPMorgan said worries about oversupply in the sector were quite excessive.
The LED business is not the only one that Innotek is embracing. To diversify its portfolio, Innotek is pushing into the solar-related sector.
Last year, it acquired an ACF business ― a key material for displays ― from LS Mtron. It has also been developing semiconductor-related components, motors for vehicles and solar modules.
In the printed circuit board (PCB) business, which is the company's traditional stronghold, Innotek is considering more investments, though Jung declined to comment.
Market analysts say LG Innotek has been supplying its PCBs to the U.S. chip giant Qualcomm.
The company’s once money-losing camera module business is also expected to gain further momentum as the Korean parts supplier is known to have supplied parts for Apple’s iPhone 4.
Innotek has supplied 5-megapixel camera sensors for Apple's latest mobile phone and will mass produce them, possibly from the second half of this year.
Steve Park, a representative at Apple's South Korean branch wasn't immediately available for comment.
"If Innotek rises to a top-tier component maker, then annual sales could reach between 2 trillion and 3 trillion won. That's why we need more global-hit products," chief executive Hur Young-ho recently said.