By Kim Yoo-chul
LG Display is expected to report operating losses during the first quarter of this year after it generated 60.6 billion won operating profit in the last quarter of 2015.
“Operating losses for LG Display during the January-March period will reach between 63 billion won and 80 billion won. The first quarter wasn’t good,” said an official familiar with the issue, Monday.
Due to seasonal factors, display firms usually report their peak quarterly earnings per year either in the second or third quarter, as major TV-makers order panels in advance for the back-to-school season in North America and the year-end shopping season.
LG Display spokesman Kim Hyeong-jong said that LG Group’s display affiliate was still on track to complete accounting procedures for the first quarter.
The downturn was mostly due to capacity expansion in China and weak end-product demand, causing the market oversupply trend to continue.
“We believe that the supply of LCD panels will outpace demand and that recovery in panel prices will be unlikely in the short term,” said Shelley Jang, director at Fitch Ratings in a recent report.
The global credit ratings agency expects the profitability of LG Display to weaken in the “short term” until the migration to premium products such as UHD and OLED displays builds up sufficient momentum.
The massive panel output by Chinese display companies greatly affected panel prices, a barometer to gauge the profitability of all display suppliers. Rather than seeking profits, Chinese companies aimed to boost their market share.
For example, the average selling price (ASP) of LCDs was cut from $70 in January to $60 per unit by March. The price for an LCD in a 42-inch TV was at $106 early last month from $146 last July, according to market research firms.
“Oversupply is due largely due to production from Chinese companies, which benefit from low capital costs and receive frequent subsidies from Beijing,” Fitch Ratings director Jang said. “They also tend to focus on market shares rather than profitability.”
Fitch said China’s newly commissioned eighth-generation glass-cutting technology fabrication plants are likely to start producing panels of 40 inches or larger soon, and this can put further pressure on prices.
The expected weak performance at LG Display may also hit its parent company, LG Electronics. “The recent downturn in the panel industry has resulted in lower ratings headroom for LG Electronics,” Jang said.
Runner-up panel-maker Samsung Display is also expected to return to the red as Samsung Group’s display affiliate is expected to report operating losses worth about 300 billion won during the latest quarter, according to market analysts.
“The inventory level of major TV manufacturers still remained high, meaning that those big buyers have no room to buy additional displays from suppliers. I think the situation at Samsung Display won’t be that different from LG’s,” an executive at one Samsung’s technology unit said, separately.
Samsung Display spokesman Kim Ho-jeong refused to comment on the issue until an official announcement.
But Fitch Ratings said LG Display’s technological leadership, economies of scale and competitive position may help to minimize the negative impact.
“There is a technological gap between Korean and Chinese companies of at least three years, and LG Display can defend its market share to a certain extent. In addition, faster-than-expected adoption of premium products by customers such as OLED and UHD TVs following downward adjustment of retail prices could provide an upside to the company's future performance,” said Jang at Fitch.