Bloomberg Anywhere Remote Login Bloomberg Terminal Demo Request


Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.


Financial Products

Enterprise Products


Customer Support

  • Americas

    +1 212 318 2000

  • Europe, Middle East, & Africa

    +44 20 7330 7500

  • Asia Pacific

    +65 6212 1000


Industry Products

Media Services

Follow Us

Global Economics

The LCD Flat Panel Rises Again

Strong earnings news from LG. Philips, the world's second largest LCD panel maker, could herald a broader, sector-wide, surge in pricing power

In recent years, consumers have grown accustomed to price declines for high-end liquid crystal display panels used for everything from high-resolution computer monitors to sleek, flat-panel TVs. It was a great ride while it lasted. Now, for the time being at least, it is the manufacturers of thin-film transistor (TFT) liquid crystal displays that are going to have the upper hand when it comes to pricing and profits.

On July 10 LG.Philips LCD (LPL) announced its first profit in five quarters, and this may signal a wider flat-screen industry upturn. LG.Philips, which is controlled jointly by South Korea's LG Electronics and Dutch electronics group Philips, swung to a net profit of $247 million in the April-June period from a $183 million loss in the previous quarter and a $349 million shortfall a year earlier. Sales were $3.64 billion, up 23% from the previous quarter and up 45% from a year earlier.

"Our second-quarter performance was better than expected, which underscored a faster than anticipated turnaround," says LG.Philips Chief Executive Officer Kwon Young Soo. A company statement said it expects a brisk revenue increase with average selling price increase in the low single digits (see, 4/11/07, "LG.Philips LCD's Loss is Really a Gain").

Optimism in the Industry

The upbeat earnings report by the world's second largest LCD panel maker suggests that some semblance of pricing power is returning to this sector which has suffered mightily in recent quarters. "You'll probably see decent margins and sales growth in the industry over the next 18 months when demand will outpace supply, although there'll be a brief seasonal slowdown after the yearend shopping spree," says Cho Yeong Duk, vice-president in charge of LCD business strategy at Samsung Electronics (SSNGY), the industry leader. Other major competitors include Taiwan's AU Optronics (AUO) and Chi Mei Optoelectronics (CMOPF).

Why the optimism in an industry hitherto plagued by a supply glut? First, LG.Philips and Taiwanese makers have been holding back on investment in production facilities in the past year after racing to ramp up production in the previous two. As a result, the industry's supply growth rate is set to fall from 75% in 2006 to 46% in 2007 and 33% in 2008, while demand is projected to rise 54% in 2007 and 38% in 2008, according to research by Merrill Lynch (MLV).

On the other hand, large LCD TVs have become affordable, encouraging consumers to snap them up. Market researcher DisplaySearch expects sales of 32-in. or bigger LCD TVs to jump to 54.9 million sets this year from 31.2 million last year. "Growth momentum for TV sales will accelerate in years to come," predicts Cho at Samsung.

Computers Going Wide

Another key driver of growth for both sales and profits is the burgeoning popularity of wider screens for both desktop and notebook PCs. Debbie Tsao, LCD specialist at Taipei market researcher WitsView, notes the introduction of Microsoft's (MSFT) Windows Vista operating system has prompted consumers to seek wider screens to better enjoy multimedia entertainment functions.

This has a knock-on effect of further tightening supply. To capitalize on booming demand for wide screens, panel makers have switched their production lines to computer monitors from large-sized TV screens. "2007 marks a big transition in the overall TFT-LCD product structure," says Tsao.

It adds up to price gains in the traditionally slow second quarter. Prices began turning up in April for monitor and notebook screens and in May for TV panels. The price of a 17-in. monitor, for example, rose to $127 on July 5, up from $122 two weeks earlier and $98 in March, according to WitsView.

Same Dynamic as 2002

Analysts draw parallels between the business climate now and in 2002 when investment in production capacity was at a low. "As the 2002 shrink in capital investment fueled improvement in panel prices in 2003 and 2004, similar investment cuts in the past year will bring about similar effects in the second half of this year and through 2008," reckons Jay Yoo, display analyst at brokerage Korea Investment & Securities.

Investors seem to agree with such projections. LG.Philips stock has risen 58.9% so far this year to $48 against a 32.1% rise in the benchmark Kospi index of the Seoul bourse. Taiwan's AU Optronics share is also hovering near its 52-week high. With the industry recovering, many brokerages, including Merrill Lynch, Lehman Brothers (LEH), and Korea Investment, are recommending "buys" for LCD makers, particularly LG.Philips and AU, which have focused on profitability in recent months.

Of course long-term prosperity is by no means guaranteed in this notoriously cyclical business. Once these panel makers accumulate cash amid tight supply, a renewed race for building next-generation factories will be just a matter of time. Already, Japan's Sharp (SHCAF) operates a so-called eighth generation (G8) plant, while S-LCD, a joint venture between Samsung and Sony (SNE), is due to launch a G8 factory in August to start churning out panels for 46-in. and 52-in. LCD TVs (see, 11/28/06, "Samsung and Sony's Win-Win LCD Venture").

Next Battle: 50-inch Screens

G8 factories will be vital for the LCD camp if they want to challenge plasma-display makers in the 50-in. TV market. LCD, which until last year spent heavily on seventh generation panel plants for competing in the 40-in. class TV sector, this year became a clear winner in the mainstream thin-TV field by winning a bloody price battle with the plasma camp in the same segment (see, 1/17/07, "Plasma vs LCD: The Battle Heats Up").

"We believe the same will be repeated in the 50-in. class, flat panel TV market," says LG.Philips Vice-President Lee Bang Soo. The company says it aims to roll out large-screen TVs from a G8 factory in 2009, the year when Merrill Lynch expects Taiwanese companies to follow suit. It's a formula that will be sure to benefit consumers in a couple of years.

blog comments powered by Disqus