LG Display Hit by Low LCD Prices Suffers Another Loss in Q218
July 30, 2018
Although LG Display is shifting its panel production from LCDs to OLEDs, it is not happening quickly enough to offset the growing glut of large area LCD panels coming from China and eroding the ASPs. As we discussed last week, BOE and CSoT shifted capacity to 55” and greater LCD panels, reversing the drop in 32” panels but increasing the availability of he larger panels, where LG and Samsung are dominant. The lower LCD prices caused, LG Display Co Ltd to suffer another losing quarter and to slash its investment plans by $2.7 billion thru 2020 citing concern for the global smartphone market, as it posted a second consecutive quarterly loss on sagging large area panel prices. “It is a conservative approach resulting from uncertainty around the mobile market,” Don Kim, LG’s chief finance officer, told an earnings conference call, referring to the capex reduction. “Market conditions are turning favorable, but still the unpredictability is high,” Kim added. “Oversupply and asymmetrical competition are unavoidable.” LG said it would trim investment by 3 trillion won ($2.7 billion) from what was planned by 2020, without revealing its total or previous capex targets. It also warned that it could adjust production in South Korea and China in response to trade disputes between Washington and Beijing. The investment cut would not impact plans to “speed up the shift” from LCD business toward OLED panels, the company said. Plans to invest about 20 trillion won in OLED panels by 2020 remained unchanged, meaning the cuts would apply to LCD and small/medium OLED operations. The OLED panel business has yet to make a profit for LG but the company said OLED TVs earnings would be positive in the third quarter. The shift comes as its traditional LCD business, which analysts estimate makes up more than 90 percent of LG’s sales, is struggling with falling prices as Chinese panel makers ramp up their capacity.
· Prices of 50-inch LCD panels slid 38 percent in May versus the same month last year, according to South Korean government data.
· The “LCD industry is already in a down-cycle, which will be difficult for LG to get away from, so LG will concentrate more on OLED to differentiate,” said John Ko, analyst at NH Investment & Securities.
· LG Display posted an operating loss of 228 billion won ($202.1 million), hit by declining panel prices, compared with an average forecast of a 247 billion loss derived from a Thomson Reuters survey of 11 analysts.
· Revenue for the April-June quarter fell 15 percent Y/Y to 5.6 trillion won.
It was LG Display’s second consecutive quarterly loss amid an uncertain time for the global panel industry, with Chinese manufacturers ramping up capacity and a glut of LCD output crimping prices and profit margins. BOE Technology outperformed LG Display to become the world's largest supplier of TV panels in the first half of 2018 with its shipments totaling 25.84 million units, according to China-based market research firm Sigmaintell. A structural oversupply in panels and fierce competition among display makers were expected to continue, LG said in a statement.
LG Display 2Q Summary (Primarily supplied by Supply Chain Market Research LLC)
a. Sales - ↓1% q/q - ↓15% Y/Y
b. Op Loss – 228b won
c. GM – 8.3%
d. Area Shipments up 2%
e. ASP - ↓3.6% on an m2 basis
f. Inventory up – OLED TV build and stocking for 3Q seasonality
g. Borrowing up
a. Issue – Oversupply from China
b. Panel price stability, didn’t happen
c. Good News
1. Inventory down in 2Q (industry)
2. Seasonality positive in 3Q
3. Expect better pricing on some panel sizes
4. TV Mix down only 1% despite price drop
5. OLED share increased
d. Bad News
1. Pricing recovery is temporary
2. Oversupply is inevitable going forward
3. Greater volatility
3. 3Q Guidance
a. Area Shipments up ‾5%
b. More positive ASP trend but based on specific product, size, etc.
c. ASP/m2 up ‾5%
d. Still considering LCD capacity reduction
e. Expect OLED TV profitability in 3Q E6 fab to begin MP in early 4Q – Gen 10.5 OLED fab – Will move to OLED quickly
4. 2018 – General
a. Capex – For New China OLED Fab -- 4t won in 1H – Same in 2H
b. LT Capex – Cut 3t won from combined capex through 2020
c. 2018 – 2019 – 16t won combine
d. 70% funded from depreciation, 30% borrowing
e. Most of financing for 2018/19 already completed
f. 50% of new debt through foreign subs
g. No new equity
h. Post 2020 capex to be below EBITA
i. 10% of OLED orders from automotive sector
j. Will start to push OLED for automotive in 2H next year –
1. What size would converted OLED fabs be? Too early to tell but probably over 35k – Sounds about right for large fab – 3 15k lines
2. How expensive? Less than 1t won –Phase 1?
3. Decision? Some time this year
4. Flex OLED philosophy – “Follower”
5. OLED TV shipments?
a. 4m – 2019
b. 7m – 2020
c. 10m – 2021
6. Tariff issues? Can make regional adjustments if necessary