LG Display and Samsung Display, the world's two biggest display manufacturers, plan to cut production throughout 2016 to prevent operating losses.
The moves come amid fears that the global display industry, which the two Korean companies have long dominated, may suffer from a huge glut mostly due to aggressive expansion by Taiwanese and Chinese suppliers.
"LG Display plans to maintain greater flexibility for display production," said an executive. "If necessary, the company may reduce production at key facilities in Paju and Gumi, as well as in China, to save the bottom line,"
LG is the global leader in displays, with chief local rival Samsung Display close behind.
LG Display Vice Chairman and CEO Han Sang-beom plans to meet Korean media during this week's tech fair in the U.S. and unveil updated business strategies.
Samsung Display is also considering lowering output of its display products.
But alongside cutting production of large-sized displays for televisions, it plans to increase output of its small OLED products for mobile phones in China.
The idea is that the small OLED products will make up for the lower sales of its large display products.
"We don't believe the year 2016 will be good," a Samsung official said. "The company needs contingency plans to deal with increasing risks."
Market analysts say the two Korean companies are expected to post lower profits in 2016, because massive expansion by their Chinese rivals may cause an oversupply.
"Leading Chinese companies plan to increase their display outputs to increase market share," an LG official said. "Next year will be very difficult for LG Display because the display industry may suffer from a supply glut."
LG ― the main display supplier for Apple's iPhones ― is expected to report fourth-quarter sales and profit below market expectations because the continued price decline in displays has worsened its bottom line, according to analysts and officials.
"The phase of price decline was speedier than expected," said Hyundai Securities analyst Kim Dong-won. "This was attributed to massive production expansion by Chinese suppliers despite weak demand for large-sized TVs, putting LG Display and Samsung Display in danger."
Kim said the two Korean companies would face a "game of chicken" throughout 2016.
"LG and Samsung can't compete with Chinese companies in prices," said Chung Won-seok from Hi Investment. "But what makes matters worse is that demand for large OLED panels is still weak, meaning the Korean companies have no replacement to fill the void left in their conventional LCD business."
He pointed out that Chinese and Taiwanese producers were also taking losses and that their situation was not much different to the Korean companies.