LG Display Q117 Results
May 01, 2017


LG Display reported their 1Q results, which were ahead of consensus on an earnings basis. The call was a bit more cautious forwardly than expected, and the company continues to hold off making capex decisions as long as possible to better gauge whether there will further panel price increases or positive changes in demand.  In terms of the shift toward OLED, which LG Display champions, the focus was toward flexible OLED rather than the usual focus on OLED TV. 
 

1. 1Q Results
   1. Sales down 11% q/q – up 18% Y/Y
   2. ASP generally up but ASP per m2 down as small panel volume declines. The slow move to OLEDs has caused the mobile mix to fall from 31% in 4Q to 26% in 1Q
   3. Best operating profit ever on strong margins. Strong margins due to higher TV ASPs -- TV mix up from 38% to 43% Q/Q offset loss of higher ASP/m2 small panel mix shift. But LGD’s gain in ASP was less than LCD panel makers (See AUO below)
   4. Capacity down 6.1% Q/Q – Up 5.1% Y/Y Due to the conversion of a Gen 5 LCD to OLED lighting
   5. Industry inventories flat q/q – Industry tight for large panel
   6. Construction

i.E4-2 – Expansion complete in 2Q
ii.E5 – Flex line – On schedule for 2H production
iii.G1 – OLED Lighting – Evaluating 15K production in 2H
iv.70% of capex for OLEDs with focus on small panel/flex this year

1. 2Q Outlook
   1. Area Shipments Flat Q/Q – Capacity constrained
   2. TV Shipments Flat to down Q/Q –Some 2Q TV demand pulled to 1Q
   3. ASP by Area – down single digit
   4. LCD Panel Pricing – Demand still shifting to larger panel sizes but potential resistance to higher pricing –
   5. OLED TV

i.Optimistic internally about OLED TV profitability being better than expected
ii.Production ratio 3x – 1H to 5x – 2H
iii.55”, 65”, 77” reached ‘golden level’ – meaning 80% yields

1. General
   1. 8K in 2019 – Panel producer perspective
   2. What about sluggish smartphone growth? – Growth is limited but hi-end growing and capacity tight – Capacity tight at high end but expanding – move to OLED more important than higher resolution

 
This was a good quarter for LG Display as profitability was better than expected.  LG Display should remain at relatively high fab utilization levels (LCD) at capacity reductions limit sales upside and OLED conversions will not replace LCD capacity on a one to one basis.  LG Display has not decided on longer-term construction plans, with such decisions not likely before July/August, as they do need to “find” the capex to continue growing. As we have discussed, Given that Samsung need only invest in small/medium capacity and rely on China for what looks to be an oversupply condition when all Gen 10.5 fabs are built, LG is at a severe disadvantage since it must build both Gen 10.5 fabs for TVs and Gen 6 fabs for small/medium.

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