LG Philips LCD Co Ltd, the 50-50 flat screen joint venture between LG Electronics Inc and Philips Electronics NV, has reported a worse-than-expected 15% fall in quarterly profits, as tumbling flat-screen prices take their toll.
The joint venture also warned that a global oversupply could push prices down by a further third.
For the third quarter ending September 30, LG Philips posted a net profit of KRW 291 billion ($254 million), compared with KRW 343 billion ($299 million) a year earlier. The result, its first earnings announcement since a $1 billion IPO in July, fell short of analysts’ forecasts of KRW 333 billion ($290 million).
Sales rose to KRW 1.84 trillion ($1.60 billion) on a non-consolidated basis from KRW 1.67 trillion ($1.45 billion) a year ago.
The company, the world’s number two maker of liquid crystal displays (LCDs), revealed that LCD prices had dropped about 20% in the third quarter and would fall by about another 19% to 32% by the end of the first half of 2005.
This is mainly due to the fact that consumers are not buying expensive LCD TVs in the volumes expected by flat-screen makers, who are currently spending billions of dollars to ramp up production, leaving a surplus of displays on the market.
LG Philips and market leader Samsung Electronics Co Ltd have each committed to spend some $20 billion on LCD factories over the next decade. However, the increasing signs of a glut have prompted others, such as Taiwanese LCD makers AU Optronics and Chi Mei Optoelectronics, to delay or stop construction of new plants.
Weaker-than-expected demand for LCD TVs is a growing problem for the industry as new factories begin production. LG Philips’s latest production line, a so-called sixth-generation facility, started in August and is set to operate at full capacity by the third quarter of 2005. The line will have a capacity of 90,000 screens on average per month.
Samsung is set to start manufacturing seventh-generation panels next year at a joint venture with Sony Corp, called S-LCD Corp.
Looking forward, LG Philips expects LCD prices to fall by 10% to 15% during the fourth quarter and another 10% to 20% in the first half of next year, vice president Kim Dong-joo said during a conference call with investors. That implies a fall of between 19% and 32% from the end of the third quarter until the middle of next year.
Prices in the first half of 2005 are expected to remain weak for both PC computers and TVs and to improve in the second half of 2005, mainly due to growing demand for LCD TVs, the company said in a statement.
Despite falling prices, the Seoul, South Korea-based company said it would continue to increase output in coming months as the industry is expected to grow in terms of volume.