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  • BOE, Tianma, TCL Report Strong Profits In 2021_03/27/22
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Musing-Weekly Newsletter

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Musing on Financials
 
LGD 2nd Quarter Financials – Still Struggling with LCD Price Reductions, Paju Gen 6 and Margins
July 29, 2019
 
LG Display reported 2Q sales of 5.35t won ($4.54b US), down 8.95% sequentially and down 4.6% Y/Y.  Gross margin was 8.9% vs 10.8% last quarter and 8.3% last year.  The operating loss, however, was 369b won ($313m US) and the operating margin declined to -6.9% vs. -2.2% sequentially and -4.1% a year ago. The key focus for 3Q guidances are: 1) a mid-single digit percentage increase sequentially for total shipped surface area; and 2) a sequential rise of about 10% for blended ASP thanks to an improved product mix. 
 
General
  • Shipments 9.94m m2– A small amount below guidance
  • Blended Area ASP - $456 – Down 13.6% sequentially & down 9% Y/Y Average TV pricing was down ~4% for 2Q, monitors down ~2.3%, notebooks down ~1%, and small panels down ~1%.  

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  • Shipped almost the same panel area as in the previous quarter, the impact of price declines, particularly TV, which was a larger percentage of sales (41% vs. 36% last Q), was significant, ~13.6% on an area basis.
  • Capacity – up 2% - Maintenance completed. ~2.3% more capacity (utilization)than in 2Q 2018.
  • Mix – Small panel declined from 25% of sales to 19% of sales – A bit larger than normal due to the TFE issues with the Paju Gen 6 fab 
  • Large OLEDs: In the North American market, LG Electronics and Sony’s OLED TVs are struggling following Samsung Electronics’ strategic price reductions for high-end models. Lowering prices for OLED panels is not a shortterm option as they just turned profitable. 
  • Small/medium OLEDs: Following approval for the (6.46”) iPhone (with production likely to take place at E6-2), expect supply of panels 5m and demand of 7m panels this year. At the E5 plant, which produces panels for non-Apple clients, production expanded for automotive and smart watch applications, while ending smartphone- related (non-iPhone) production. 
  • TV Shipment share increased from 36% to 41% - Based on increasing OLED sales and steady OLED TV pricing, but insufficient to offset LCD price declines 
  • Inventory – Down slightly – Will ‘manage conservatively going forward’ 
  • Debt – Liability to Equity up 11bps – Net debt to equity up 5bps – Will likely continue to rise through 1Q 2020 
  • Capex – 8t won ($6.8b US) this year – A bit higher than expected, but not out of line with fab progress
  • Expected to declining to 4t ($3.4b) in 2020 and 2021 – but could increase with 2nd Gen 10.5 OLED fab 
 
3Q Guidance
 
  • Area Shipments up mid-single digits – In line with last year (up 4.8% sequentially)
  • Blended Area ASP – Price declines to moderate. Typical 3Q TV pricing is typically down just under 2%.
  • Increased small panel flex OLED shipments – LGD adding smartphone contracts and should participate in the next iPhone release (2019). 
  • Expect results of improvement in unit volumes as new fabs come on line, but relatively slowly.  
  • Capex almost completely for OLED, so LCD remains the burden.  
 
Fabs
 
  • Guangzhou fab ready to start operation
  • Will double OLED TV capacity by year end
  • MMG (Multi-mode glass) – Start with Guangzhou fab in 2020 and then apply to other fabs –--Mentioned that other fabs were also using MMG but did not answer a direct question about which fabs.  Possibly the ‘intension’ of upgrading other TV fabs to MMG.
  • Focus on 65” and 77”
  • Small panel
  • Gumi flex OLED supplying to multiple clients
  • Paju fab ready for operation – No mention of dedicated (customer) output
  • Both will contribute to growth in 2H 
  • Automotive
  • Converted one OLED fab from mobile only to mobile and auto 
  • Design, weight, space” key selling points –  
  • Gen 10.5
  • Total investment will be KRW7.64t (around ¥700.0b). 
  • Invest an additional KRW3t (which will raise production capacity at the P10 plant to 45,000 panels/month, the investment will go toward additional TFT production equipment (to boost capacity by 15,000 panels/month) and OLED deposition equipment, from YAS
  • Production to start in 1H 2022 with an initial capacity of 30,000 panels/month and the remaining 15,000 panels/month to be produced starting 1H 2023.
  • Dedicated to large OLED panels (white OLED) for 65” or larger TVs. 
  • MMG to be used
  • Idemitsu Kosan and Nippon Electric Glass will benefit (the former will supply blue fluorescent emitting materials; the latter will be the sole supplier of glass substrates).
  • LCD fabs                 
  • Likely to replicate Samsung and convert much of their LCD large panel capacity to OLED.  Not overnight, but in the foreseeable future.
  • Three Gen 8 LCD fabs:
  • 1 converted to OLED
  • 1 High-end IT and commercial
  • 1 questionable
 
 Table 1: OLED TV Shipments by Brand
Picture

Source: Mizuho
Export/Trade
 
  • No current impact – Other than making buyers and retailers even more nervous than they were.  
  • Could lead to a bit of a rush to place orders in early 3Q, as some buyers become concerned that LGD might come up short on components, but the diversify sources 
  • Uncertainty and extreme competition in LCD US/China trade and Japan export issues increase uncertainty at all levels
 
Figure 1: OLED Panel Shipment
Picture
Source: Mizuho, OLED-A
​
​Q&A
                
  • Could capex for Gen 10 fab be ‘shared’ with customer?  No need, will be financed through EBITDA. 
  • Would entertain strategic funding source. Not only TV related, as the Gen 10 fab is oriented toward ultra-large panel displays, it would be unusual for a different application to be produced, but certainly not out of the question.  
  • Rumors of MMG delays at Guangzhou fab? No delays for MMG – Ready for production
  • MMG for Gen 10? Not an issue – The big issue for LGD Gen 10 was stabilizing the oxide backplane at this larger size, which was not an easy task 
  • QLED discounting pressure & OLED TV targets. Target for 2020 remains 7m units – 
  • Company saw 30% growth in TV sales over 5mos – excluding North America 
  • Decision timing on Gen 8 LCD fab? Current cash flow indicates no change yet. Decision will be based on future CF – If prices continue to decline and competition keeps increasing, it is inevitable.
  • Flexible OLED update?
  • Gumi – Mobile, automotive and foldable
  • Increasing output for ‘clients’ – This might indicate a participation in the upcoming iPhone 
 
  • Paju – Mobile – 30k Will start up lines based on ‘reliability’ 
  • Adjustments to utilization? Have made some utilization adjustments to manage inventory – Likely LCD related
  • Idle lines for 1-2 days – Still expensive but better than writing off excess inventory
  • Bottlenecks at Gen 10 fab? Oxide backplane preparation completed Now preparing for evaporation equipment – Not easy, but they have a great deal of experience at the Gen 8 level. From: SCMR
 

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