Try the new FT.com

September 14, 2005 10:09 pm

Samsung eyes scaling back LCD spending

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments

Samsung Electronics, the world’s second-largest maker of liquid crystal displays, says it will consider significantly scaling back its multibillion-dollar investment in flat screens if profitability continues to slide while competition intensifies.

Tough trading conditions across all divisions – including handsets and  semiconductors as well as LCDs – could cut the company’s total profits by as much as a fifth this year, Yun Jong-yong, chief executive of Samsung Electronics, told the FT in an interview.

“Compared with last year, we will not do as well,” Mr Yun said in an interview. Samsung outperformed Microsoft in 2004, with net income of Won10,786bn ($10.7bn).

“Profit may decrease by 10-20 per cent,” he said. “That has a lot to do with the market situation, including increased material and oil prices, and the exchange rate.”

The LCD sector has been plagued by over-supply and a lack of demand, but Samsung is considered to be holding up well, so doubts about its future in the industry are likely to rattle competitors and investors alike.

“LCD is a very difficult business and it requires a large amount of investment,” Mr Yun said. “If LCDs become just a commodity, we will be prepared to make adjustments in this business.”

Samsung and local rival LG Philips, the world’s largest maker of LCDs, have been battered since flat-screen prices began falling more than a year ago. Both have continued to spend billions of dollars on increasing their production capacity in the expectation that demand will pick up as the televisions and monitors become more affordable.

Samsung is investing Won1,760bn ($1.7bn) on equipment to double the production capacity of an LCD factory it is building in Tangjeong, south of Seoul, in addition to Won2,860bn in capital expenditure that Samsung has budgeted for LCDs this year. The company also started production on seventh-generation LCD panels in conjunction with Sony in April this year.

Meanwhile, LG Philips is spending $5.3bn on a seventh-generation facility in South Korea, which will be the world’s biggest LCD complex.

“Because people are watching TVs and looking at monitors, this business won’t disappear,” the head of Samsung said. “But we will make our judgments depending on the competitive landscape.”

Mr Yun was consoled by the fact that Samsung’s rivals in Taiwan and Japan were suffering even more. “Our competitors are barely making a profit – they’re just breaking even. However, we are making a fairly large profit so we’re not as concerned,” he said.

Analysts say flat-screen prices appear to have bottomed out and are likely to stabilise in the second half of this year. Samsung has previously estimated prices would start to pick up in the December quarter. In spite of starting production on seventh-generation LCD panels in conjunction with Sony in April this year,

“But demand won’t really hit a sweet spot until prices come down to $2,500-$3,000 for a 42-inch,” said Thomas Choi, head of research at PCA Asset Management in Seoul. The average price is now $3,500-$4,000.

But Mr Choi was nevertheless upbeat about the outlook for Samsung’s LCD business. “Samsung has built a seventh generation production line that should be able to lower production costs and eventually prices,” he said. “Samsung should definitely view LCD as a profit generating business.”

Copyright The Financial Times Limited 2017. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments

NEWS BY EMAIL

Sign up for email briefings to stay up to date on topics you are interested in

SHARE THIS QUOTE