Samsungs LCD biz finds support in rival Sony
By Kim Yoo-chul
Amid a downturn in prices for liquid crystal display (LCD) Samsung Electronics and LG Display are diverging in the turn of fortune.
A glut in their inventories, coming as the result of a mismatch in demand and supply, is hurting LCD prices.
Although of the two Korean firms lead the industry, Samsung is expected to fare better in terms of the bottom line during the July-September period.
The reason being, ironically, Sony.
"We can say it is a 'client effect.' Samsung is more focused on the sale of high-priced televisions such as LED-backlit LCD ones, while Sony is shifting toward massive outsourcing, a move benefiting Samsung," said a top-ranking industry executive, Monday.
"Thanks to Sony orders, plus shipments to Apple, Dell and Hewlett-Packard, the impact of reduced prices on Samsung's LCD business will be minimized," the executive said.
As in the past, Samsung is the leader in the global flat-screen TV industry. It is aiming to be in the No. 1 position for the fifth consecutive year with a 25 percent share by selling more 3D and LED-backlit LCD TVs.
Samsung and LG Display supply LCD screens to leading technology companies. In terms of more profitable TV partners, however, Samsung is slightly ahead of LG simply because of Sony _ the world’s No. 3 TV manufacturer.
Overtaken by Samsung Electronics in the area of flat-screen televisions, Sony has been focused on finding future earnings.
Its answer is a departure from its conventional hardware-focused business model.
In an era of Internet-enabled TV, Sony has been strengthening tie-ups with software giants such as Google to use its core competencies over its television rivals.
The core competencies cover areas such as movie, music and video game resources.
Now, Sony aims to make its television business profitable for the first time in seven years in the fiscal year to March 2011 mainly on the back of cost-cutting.
"As a part of the outsourcing campaign, Sony is relying more on Samsung for hardware technologies that make the heart of the product," said the executive.
DisplaySearch, a market research firm, said Sony raised its global flat-screen TV share to 12.1 percent in the second quarter of this year, up from the previous quarter’s 9.2 percent. During the same period, Samsung marked 0.5 percentage points to 18.8 percent.
Sony also reclaimed the No. 2 revenue share position in global LCD TV sales, surpassing LG Electronics for the first time in over a year.
"Sony is buying more panels from Samsung in its joint venture with Samsung called 'S-LCD' located in South Korea's local provincial city of Tangjeong to provide more budget TVs," said a Seoul analyst.
Hong Ji-eun, a representative at Sony's South Korean office, declined to comment. Kim Choon-gon, a senior Samsung spokesman was mum about the issue.
Back to the LCD industry, circumstances are returning to red.
iSuppli said the facility investments by LCD makers throughout this year will grow by 43 percent to reach $16.9 billion from $11.8 billion in 2009, which is more unwelcome news for the overall industry.
DisplaySearch said the unit panel price for a 32-inch LCD TV was trading at $174 as of the first week of September from $208 in April, extending its losing streak for the fifth consecutive month. The unit price for a 46-inch television dropped by $46 to $388 during the same period.
The cost of an 18.5-inch panel widely used in notebook PCs has fallen to $57 from $81 over the last five months, the researcher said.
"Consumer demand for LCD-required gadgets was squeezed by economic troubles in the eurozone, increasing inventories," said Kang Yoon-heum, an analyst at NH Securities.
Another market research firm iSuppli claimed a drastic cut in orders during July had made the situation worse.
It added panel prices will drop in September as well due to bigger promotional campaigns to attract more customers, causing much pressure on panel makers.
LG Display extending output cuts
Although Samsung's LCD business is widely expected to post a "fair" quarterly earnings report in the current quarter, LG Group’s display-making affiliate LG Display has been alerted over its deteriorating quarterly cash-balance sheets.
LG Display said it will extend the output cuts in September, as well, from August due mainly to weak demand from TV makers.
Its biggest panel customer LG Electronics is struggling to diversify its TV lineups despite the lower demand. Also, LG's main clients in China are having troubles to increase the sale of flat-screen TVs.
DisplaySearch said China’s LCD TV market is showing signs of slowing down, as shipments have dropped to 31 percent year-on-year after triple-digit growth last year.
Samsung said it will be flexible in the LCD panel production, while LG Display says its factories are working at 90 percent of their full capacity.
Kang at NH Securities expects third-quarter operating profit for LG Display to decline to 284.8 billion won.
Kang said the rising popularity of smart televisions will not help LG Display because of LG Electronics lagging in the new TV segment.
Analysts predict LG Display's business will be normalized from the first quarter of next year at the earliest, citing cutting premiums in LED-backlit LCD panels due to the rush of makers to provide more affordable LED-backlit LCD TVs.
"Samsung's LCD business has more room to minimize the effects of the industry's downstream thanks to stronger clients ― Samsung Electronics and Sony. But this is not the case for LG Display," said an industry watcher.
Yoon Hyuck-jin, an analyst at Shinyoung Securities, warned investors about LG Display shares, referring to market uncertainty.
"We've lowered our target for LG Display to 50,000 won per share from the earlier projection of 52,000 won," said Yoon.