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LG.Philips posts loss, reduces spending

Posted: 13 Jul 2006 ?? ?Print Version ?Bookmark and Share

Keywords:loss? LG.Philips? TFT LCD? Ron Wirahadiraksa? Sean Shim?

LG.Philips LCD posted its largest-ever quarterly loss in sales for Q2 of this year, forcing the world's leading TFT LCD manufacturer to make a major reduction in capital expenditures for the year.

Unaudited results on Tuesday (July 11) showed that sales for the quarter ended June 30 were $2,441 million, a 0.3 percent rise over $2,433 million for the corresponding period of 2005.

However, the result represents a 6 percent decline over $2,605 million in the first quarter of 2006.

LG.Philips blamed an industry-wide decline in average selling prices across the TV, monitor and notebook segments, as well as overcapacity, for the lackluster performance during the quarter.

The performance was expected as the company issued a downbeat updated second quarter 2006 forecast last month, when it said it would reduce production to address inventory concerns and that it was looking "to better balance short term supply with demand." It said in June capacity plans are being reviewed for the year, and beyond.

Operating loss in the second quarter was $392 million compared to an operating profit of $31 million in the second quarter of 2005 and a profit of $55 million in the first quarter of 2006.

TFT-LCD panels for TVs, desktop monitors, notebook computers and other applications accounted for 48 percent, 26 percent, 21 percent and 5 percent respectively, on a revenue basis, in the second quarter of 2006, compared to 45 percent, 30 percent, 20percent and 5 percent in the first quarter of 2006.

The company shipped 1.5 million square meters of display area in the quarter, a 17 percent increase sequentially, with an average selling price per square meter of $1,598. This represents an approximate 19 percent drop in the average selling price over that of the end of the first quarter of 2006.

"We are disappointed with our financial performance in the second quarter of 2006. As we announced in June, we are addressing an increase in inventory levels during a period of overcapacity, primarily in the LCD TV segment, by temporizing production. We will continue to control inventory levels going forward," said Ron Wirahadiraksa, president and CFO of LG.Philips LCD.

Wirahadiraksa added the company is "confident" that its business results and prospects will improve over the course of 2006, but said: "We have made a decision to postpone investment in existing fabs and, as a result, have revised our capital expenditure guidance downward from $4.45 billion to $3.18 billion for 2006."

The company said it currently has a four-week's worth of LCD panels in inventory.

As a result, the company said it would readjust the timing and size of its investment in its Gen 8 (P8) LCD facility under construction in Paju. Instead, it will invest $583.71 million in a multi-purpose Gen 5.5 facility which will be housed in the P8 facility.

LG.Philips aims to begin volume production in the new Gen 5.5 facility during the second half of 2007 focusing on LCD panels for wide format notebooks and high-end monitors, the company said.

Capital expenditures in the second quarter of 2006 were $1,044 million, down from $1,022 million in the second quarter of 2005, and were mainly used for the P7 facility.

Wirahadiraksa said the company expects to see LCD panel prices begin to stabilize and anticipates sustained growth in consumer demand for LCD TVs in the second half of 2006, particularly in the fourth quarter.

"For the third quarter of 2006, we expect our area shipments to increase quarter-on-quarter by a mid-to-high twenties percentage, driven by continued growth in the expanding LCD TV segment, continued ramp up at our P7 facility and the stabilization of pricing," he said.

He also forecast the ASP per square meter of net display area shipped at the end of the third quarter to be relatively flat, as compared to the end of the second quarter, largely due to increased seasonal demand leading into the holiday season. But he expected the average ASP per square meter throughout the third quarter to decrease by a mid-single digit percentage.

- Sean Shim
EE Times

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