Samsung cuts LCD output amid downturn

By Kim Yoo-chul

Samsung Electronics, the world’s top supplier of LCD panels, said it has reduced its production by 7 percent amid falling prices and sluggish demand for devices that use large-sized panels.

This is the first time in two years that the electronics giant has joined an industry wide reduction in LCD output.

In October 2008, then Samsung LCD chief Lee Sang-wan lowered output by 5 percent amid the global economic crisis.

``Samsung has already begun cutting production since September amid few signs of a price turnaround and massive stockpiles,’’ a top-ranking industry executive told The Korea Times in a phone interview, Tuesday.

With the output reduction, Samsung’s factories have been operating at 92 to 93 percent capacity, which the executive said is expected to last through the end of the year.

A senior Samsung spokesman said the company was controlling production to respond to market conditions but refused to elaborate further.

According to data from DisplaySearch, a market research firm, Samsung cut its panel output used in televisions to 4.3 million as of the end of October from 4.5 million in September.

The LCD industry is highly cyclical and volatile depending upon the macro-economic situation. Inventories are generally high for most leading LCD makers as they saw a surge in production of consumer electronics goods after a year-long market downturn amid the financial crisis.

The flurry of new models has put additional pressure on TV prices, which usually experience a 30-percent decline, annually.

It’s no big surprise that the market for large-sized LCD panels, which saw shortages months ago, has now shifted in the opposite direction, forcing electronics manufacturers to cut back output and lower prices to reduce inventories.

The Samsung spokesman said its supply chain for both panels and finished products has remained healthy. Usually, stockpiles filter down the supply chain.

Black Friday

The remarks on Samsung’s output reduction come after electronics sales by U.S. consumers during last week’s ``Black Friday’’ shopping season were lower than earlier expected. Black Friday is regarded as a barometer to gauge the intensity of consumer spending.

The day after Thanksgiving marks the beginning of the holiday shopping season.

Both media and investors pay attention to sales during this holiday weekend as they give a glimpse of the direction of retail sales for the remainder of the year.

But it’s quite evident that this year’s Black Friday didn’t give any ``firm signals’’ of a recovery in consumer spending at least in the U.S., the world’s top consumer electronics market.

The U.S.-based retail research firm ``Shopper Track’’ said people were spending more than last year this season; but sales only rose by 0.3 percent, lower than the National Retail Federation’s earlier estimate of 2.2 percent.

``Black Friday failed to present strong signals for a full recovery in the consumer electronics industry. Although Samsung is hoping to receive more panel orders ahead of the Christmas and New Year holiday season, more time will be needed to lower stockpiles,’’ said another top-ranking industry executive.

``With that perception, it’s no surprise to see output cuts throughout the year,’’ added the executive.

But some said the impact of Black Friday on profit structures of leading LCD and even set makers is still debatable as financial figures are mixed.

Earlier, the chief of Samsung’s LCD business Chang Won-kie said he did not expect the division to post operating losses in the fourth quarter but added the current weaker prices could continue until the latter half of next year unless there is a ``significant recovery’’ in consumer spending.

Samsung is expected to see a further drop in profit in the current quarter from 520 billion won that it reaped in the third quarter _ a 57 percent drop year-on-year, according to local brokerages.

Samsung’s biggest local rival LG Display has maintained a nearly 90 percent production level.

LG officials say the company is closely monitoring the North American market to determine whether to return to full operating capacity.

``The demand for panels used in information and technology related devices is quite healthy, though we were seeing a slight rebound for prices in large-sized televisions,’’ said an LG spokesman.

Industry officials and stock analysts are not ruling out the possibility that LG Display will swing to operating losses for the fourth quarter of 2010, though the LG official declined to comment.