Acid test on LG Display CEO’s mettle

Volatile business cycle catches up with LG's charismatic leader

By Kim Yoo-chul

LG Display CEO Kwon Young-soo is facing a critical test of his leadership for the first time since he took the helm in 2007 as the global flat-screen market is heading towards rapid saturation.

It seems premature to say that Kwon, who has earned solid praise from LG’s owner families including Chairman Koo Bon-moo, has been cornered to be stripped of his position immediately, as he has helped LG Display rise in the world of flat-screens to compete with Samsung.

But the one thing is clear ― momentum. LCDs are increasingly becoming commodity products with wide supply and demand swings.

That means the LCD business is volatile and subject to macroeconomic fluctuations because consumers usually cut back their spending on electronics products when the economy is down, cutting into the profits of major LCD makers hit by price falls and rising inventories.

Despite such market conditions, Kwon helped LG Display, LG Group’s key display-making unit, see a turnaround in terms of operating profit just a year after he was given the top post.

``He is unique, rarely seen in the conservative LG Group style as the CEO is aggressive yet easygoing with employees. But the biggest fear is our cash-cow business is now in a worrying state,’’ said an unnamed LG official.

``LCDs are still the mainstay in the flat-screen industry. But the key point is the market is being crowded with more players and that means the sector is no longer a blue ocean that can create bigger revenue,’’ said the senior official.

During the second quarter of this year, LG narrowed its operating losses but extended its losing streak for the third straight quarter due to weak display prices and lower than expected consumer demand in display-embedded devices.

LG reported 48.3 billion won in operating losses during the April-June period out of quarterly revenue of 6.05 trillion won, it said in a regulatory filing to the Korea Exchange (KRX).

And those results have improved considerably compared to 239 billion won in operating losses that LG Display saw in the previous quarter.

``Considering the uncertain outlook for the entire sector, LG Display’s operating profit consensus throughout the year of 258 billion won is too high,’’ said Kwon Sung-ryeol, an analyst at Dongbu Securities, cutting the brokerage’s target on LG shares by 27 percent to 38,000 won.

It slashed its investment to key facilities to 4 trillion won as it is unlikely that demand will rise by early next year, said LG’s chief financial officer (CFO) Jeong Ho-young.

Such a pessimistic outlook comes after the world’s top LCD maker Samsung Electronics is looking at a big management reshuffle of senior-level executives in its LCD business.

Samsung’s LCD chief Chang Won-kie was stripped from his position due to sluggish performances and even LG’s biggest local rival fired executives at its LCD business in a follow-up measure.

``That’s because Samsung’s top management reached a consensus over the need to migrate to the next flat-screen displays such as OLED and flexible displays for new business momentum,’’ said a senior Samsung executive.

LG spokesman Gary Son denied market rumors that the world’s second-biggest LCD maker will conduct a large-scale reshuffle of its top management.

For confidence in the market, Kwon recently bought 10,000 company shares, but even the good-will gesture wasn’t welcomed. LG Display shares were trapped in box-trading.

Officials and stock analysts point out the sluggish stock price moves were mostly due to LG’s passive response to its ``next products.’’

While Samsung is investing heavily in OLEDs and flexible displays, LG Display is still passive on the faster migration of next-generation displays saying LCDs with better viewing quality are good enough to attract big firms such as Apple, Dell and Hewlett-Packard (HP).

LG is supplying its ``Retina Displays’’ to Apple and it’s been in talks with the company to produce picture-quality enhanced LCD displays for its upcoming iPad 3.

``This is not enough. LG needs to present a clear business roadmap to soothe investor concerns over the company’s mid- to long-term outlook,’’ said a fund-manager from a European investment bank operating in Seoul, asking not to be identified.

LG’s current answer for the visible business roadmap is its in-house three-dimensional (3D) film-patterned retarder (FPR) technology.

Although it has merits in terms of pricing, the demand for FPR 3D televisions in emerging and developed markets is not noteworthy due to the lack of customized content, higher prices and the existing heavy inventories of LCDs and plasma televisions, according to analysts.

`` Kwon’s bullish management style is destined to be phased out. His business transformation strategy of jumping into a set-business makes sense, however, it also needs to be fine-tuned,’’ said another industry executive.

In a message to employees, Kwon said ``crisis is an opportunity. The game has not ended. We will do it.’’

LG Display is widely seen as delaying the actual operation of its biggest China LCD plant as there is no guarantee of Chinese consumers looking toward electronic goods in the foreseeable future.