LG Weighs Selling PDP Line to China
By Kim Yoo-chul
Staff Reporter
LG Electronics is weighing the possibility of selling equipment from its oldest plasma panel manufacturing line.
Its latest decision is giving one clear reason for the world's No. 3 plasma panel supplier that the plasma business now faces a "bumpy road."
The plasma business is dragging down the profitability of LG Electronics and is making it difficult for the Korean electronics giant to eventually meet its ambitious profit goals, including a 6-percent profit margin and 20 percent return on invested capital by 2010.
"We are reviewing various ways. The sale of manufacturing equipment from A1 line in Gumi, North Gyeongsayng Province, is one possible option," a LG spokesperson said.
The company halted production at the A1 plant in July last year in a measure to increase efficiency in the plasma business. The line had started operation in 2001 with a monthly capacity of 70,000 plasma panels for 42-inch PDP TV sets.
LG's display division, which includes liquid crystal display (LCD) TVs and bulky cathode-ray tubes as well as PDPs, posted a meager 1 percent operating profit margin in the second quarter after dumping loss in 2007.
Over a scenario to sell the equipment to China’s PDP set maker Sichuan Changhong Electric, the LG official declined to comment further. Speculation is running high that the equipment is to be sold to Chinese maker as Changhong has just come into the market early this month.
"Demand for PDP TVs will be impacted in the second half because of the global economic slowdown and industry sales of PDP TVs will decelerate next year," Kang Shin-ik, head of the company's display division said.
Industry experts say LG's plasma business is in a "critical moment." Market research firm DisplaySearch forecasts the 32-inch PDP TV market, on which LG is betting its future, will fall from 1.8 million units in this year to 840,000 by 2011.
"PDP TVs are losing their marketability," Kim Ik-sang, an analyst at CJ Investment & Securities said. "There would be no way out if LG misses the right timing for selling its outdated PDP lines or striking a strategic partnership with overseas makers."
PDP technology is well-suited for large flat-TV panels of over 40 inches, however, its competitive edge is disappearing as large LCD screens become cheaper to produce through "economies of a scale." Meanwhile, rising inventories in the global LCD industry are deteriorating profitability of plasma manufacturers.
"Many believe LG’s PDP business will experience further difficulties as PDP TVs will lose out in competition due to the falling prices of better viewing LCD TVs and have no ground in the below-40-inch mid-sized TV market," an industry source said, Monday.
LG officials say its plasma business, capitalizing on niche 32-inch modules, won’t lose momentum, at least. But the company is advised to implement some ambitious measures for profitability as the PDP business was verified not to contribute to the company’s margins.
"Time is up for LG because market situations will get worse because of worries faced by the entire flat-panel industry ― continued macro-economic woes and steady price falling for flat-panels," the source said.