LG slashes LCD investment costs, maintains planned investments in its OLED business

LG is bent on migrating towards making next-generation OLED panels and has slashed investments in its LCD business, which incidentally accounts for nearly 90% of its revenues.

South Korea’s LG Display Co Ltd, a key supplier of panels for Apple, posted its second consecutive loss citing poor panel prices while slashing its investment plans by $2.7 billion to 2020.

The announcement comes in the wake of another Apple supplier, Taiwan Semiconductor Manufacturing Co Ltd (TSMC), scaling back its investment plans and revenues forecasts citing a bleak outlook for its chips.

“It is a conservative approach resulting from uncertainty around the mobile market,” said Don Kim, LG’s chief finance officer, in reference to the capex reduction.

With the news reaching the market, LG’s shares fell by 7% against the broader market’s fall of 0.3%.

“Market conditions are turning favorable, but still the unpredictability is high,” said Kim while adding, “Oversupply and asymmetrical competition are unavoidable.”

LG has said, it will reduce its planned investments by $2.7 billion (3 trillion won) from what it had originally planned of investing by 2020. LG did not reveal its total or previous capex targets. It also warned that it could adjust its production in China and South Korea in response to the ongoing trade war between the U.S. and China.

However, the cut will not impact its plans to migrate from its mainstay liquid crystal display (LCD) business toward next-generation organic light-emitting diode (OLED) panels, said LG. This also means that its cuts will mainly be confined to its LCD operations.

Incidentally, although its OLED panel business has yet to make a profit for LG, the company said revenue generation in the third quarter is likely to turn positive.

The company is focused on investing in OLED technology, and has taken strong positions in the large OLED TV screens segment.

The change comes as its traditional LCD business, which according to analysts’ estimate makes up more than 90% of its sales, is struggling from falling prices as Chinese panel makers ramp up their capacity.

According to South Korean government data, the prices of 50-inch LCD panels have reduced by 38% in May, in comparison to the previous year.

“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.

Incidentally, it has recently entered into a joint venture agreement with a Chinese company, in its efforts to tap the Chinese TV market.

($1 = 1,128.8000 won)

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