LG Display posts Q1 losses reflecting low LCD prices
OLED is the favoured way forward.
LG Display warns investors of a weak 2019 as various TV and smartphone display market forces contribute to a Q1 loss larger than feared.In the first three months of 2019 leading up to 31st March, LG Display reported a larger than expected net operating loss of 132 billion won (£88.1 million). This follows an operating profit of 279 billion won (£186 million) from the final quarter of 2018.
Despite this loss, overall revenue for the same period increased by 4% to 5.9 trillion won (£3.9 billion). So if sales are up, what’s behind the losses?
These net losses are attributed to falling LCD prices and since LCD sales still make up the greatest proportion of LG Display sales (panels for TVs accounted for 36% of the Q1 revenue), the effect is marked. According to data from WitsView (an analyst tracker for TFT panel prices and shipments), the prices for 50-inch LCD displays fell by nearly a quarter compared to the same period in 2018. These falling LCD prices are expected to continue into the second quarter too, compounded by a supply excess from Chinese manufacturers.
In addition, sales of panels for mobile devices were affected by a sluggish mobile phone market and accounted for only 25% of revenue in the face of slower than expected sales of companies’ latest phones.
LG Display’s business plan is to move away from LCD manufacturing, with its low-profit margins and decreasing demand, and move further into OLED production. Thus, the company has also been investing in its OLED production capabilities meaning this capital spending will have been reflected in the reported operating losses.
The company’s new OLED plant in China’s Guangzhou is expected to start operation in the third quarter which will allow manufacturing capacity to ramp up as demand for the newer technology eventually outstrips that of LCD and the greater profit margins of OLED over LCD will begin to reverse losses.
In its large-sized OLED panel business, the LG Display reached a break-even point in the second half of last year with shipments of 2.9 million units accounting for over 20% of total TV panel revenues in 2018. For 2019 it is expected that the percentage of large OLED TV sales will reach over 30%, signs that a reversal of fortune may not be too far away.
Currently, LG Display is the only panel maker with an efficient enough process to mass produce the larger OLED panels that are increasingly demanded by the TV viewing public. However, competition from Samsung with their nascent Quantum Dot OLED process is not far away and LG may wish to speed up the transition to new inkjet-based manufacturing processes based on LG Chem’s acquisition of DuPont patents.
The company continues to explore the differentiated applications afforded by OLED technology and opportunities in areas such as the automotive industry could also help lead to an uptick in future revenue to offset these recent losses.
“We will continue our efforts this year to overcome the challenges that lie ahead as we shift towards a more OLED-focused business structure. We believe that we are on track to build a firm foundation for an OLED-focused business portfolio for future growth, and expect to show solid performance starting from next year,” said Dong-hee Suh, CFO and Senior Vice President of LG Display.
Seo Dong-hee, the chief financial officer said, “We need patience this year to overcome challenges as the business structure is transitioning to OLED,” before adding, “We will develop various applications of OLED panels to enhance earnings.”
So the message to investors appears to be one of ‘toughing it out’ for 2019 until 2020 begins to reap some rewards.
Source: www.koreajoongangdaily.joins.com, www.lgdisplay.com, www.reuters.com
Image Source: Reuters
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