59th LG Display Sees First-Mover Advantage in China
By Kim Yoo-chul
Staff Reporter
LG Display is expected to drop the years-long shameful name tag, "fast follower," in its key liquid crystal display (LCD) flat-screen business at least in the world's most promising market ― China.
Analysts and flat-panel experts are divided over the outlook in the flat-screen industry there, citing intensifying pricing pressure on mid- and large-sized LCD panels because of the production ramp-up by the industry’s leading manufacturers.
But LG Display is hoping to write a different story with a timely and decisive investment decision there. Officials say this has given the company a "first-mover" advantage.
"In China, LG Display is no longer a fast-follower of Samsung. No matter how the situation develops, the key point is that LG is farther along in terms of the decision timing according to market needs," a top-ranking industry executive told The Korea Times, asking not to be identified.
According to sources, LG is in the final stages of completing partnership talks with the top global PC monitor maker in China to build a joint LCD assembly plant in Fujian province.
The plant will manufacture LCD modules for both computer monitors and televisions, sources who are familiar with the situation said.
If the deal is struck, the plant would be LG's third module facility in China, following ones in Nanjing and Guangzhou.
"Such plans show that the company is on the right track in implementing its detailed strategy for a bigger share in the Chinese market," another industry source said.
In August, LG signed a memorandum of understanding (MOU) with the Guangzhou government to build an LCD manufacturing facility using eighth-generation technology that could cost more than $3 billion. The new line will go online sometime in the latter half of 2011.
Samsung Changing Strategy, Follows LG Moves
The decision by LG has eventually resulted in Samsung following in its footsteps.
Industry leader Samsung will set up a 2.6 trillion won ($2.2 billion) joint-venture in China to meet growing demand for LCD panels in the world’s fastest-growing economy, Samsung said in a regulatory filing.
The venture in Suzhou will build a 7.5-generation LCD plant for 42- and 47-inch panels, to begin production from sometime in the first half of 2012.
"The interesting thing in Samsung's investment is that it has adopted LG Display's standardized mother glass substrates format. The company is seeking imminent profits in China rather than creating a new segment," the source added.
Samsung has its own size of glass substrate ― 7th generation and 8th generation.
Seventh-generation LCD technology is optimized to cut eight sheets of 40-inch panels and six sheets of 46-inch panels, while 8th generation technology cuts eight sheets of 46-inch LCD panels and six sheets of 55-inch panels.
The 7.5th-generation processing technology, which has already been adopted by LG Display, is optimized to cut eight sheets of 42-inch panels and six sheets of 47-inch panels.
Higher generation plants use larger glass substrates to make LCD panels, which boosts output and lowers manufacturing costs.
LCDs are the screens used in everything from mobile phones to computers and TVs.
Experts had earlier predicted a trend in which flat-panel televisions keep getting bigger.
But in the wake of the global economic slowdown, China has become the driving force in the market with medium-sized TVs measuring 30-40 inches being the most popular.
"The main reason why we had been dropped to apply 8th generation tech in our Chinese plant is that 42-inch LCD TVs are selling well in China," a Samsung Electronics spokesman said, adding the strategic decision was a major departure from the stubborn "40- and 46-inch standardization stances."
According to market research firm DisplaySearch, China will become the world's largest LCD TV market in the world, surpassing North America and Western Europe by 2012, when 39.4 million LCD TVs are expected to be sold in the mainland, compared with 13.4 million in 2008.
"In a follow up move by LG Display, Samsung has chosen concentration and selection strategies for the Chinese market," it said.
Cutting Oversupply
The rush by Asian LCD makers to ramp up production at home and to invest in new plants threatens to curtail the nascent recovery in the flat-panel market.
Although another supply glut could be looming as soon as in the late fourth quarter, LG Display executives believe that oversupply won't be as bad as in the past.
"The prices of LCD panels will likely start falling from the fourth quarter of this year and hit bottom sometime in the first quarter of next year," LG Display chief financial officer Jeong Ho-young said.
"Prices will start rebounding from sometime in the second quarter of next year," he added.
Better-than-expected demand in China's television market has been a factor helping the global large-sized LCD panel industry return to profitability in the third quarter after a year of losses or zero returns, research firm iSuppli Corp. said.
In line with this analysis, strong demand from China boosted LG Display's third-quarter earnings to a record, prompting Kwon Young-soo, LG's chief executive, to stress that the country would be crucial to demand for the LCD industry.
Net profit at LG Display almost doubled to 559 billion won or some $483 million from July to October from the same period a year ago.
"There are many LCD makers who are planning to build new lines in China. But I doubt that such plans will materialize. If investments go as scheduled it is highly unlikely for China to face an oversupply, considering the average annual 10 to 15-percent demand growth, there," Jeong of LG Display said.