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July 11, 2006 11:49 am

LG Philips reports record loss for Q2

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LG Philips LCD, the world's second-largest flat-screen maker, on Tuesday reported a record loss in the second quarter on weaker-than-expected World Cup sales in results that will cast a shadow over the beleaguered sector.

At the same time, the company presented a gloomy outlook for panel prices, projecting they would fall further in the third quarter, and said it would hold off from further investment in its existing plants.

“We are disappointed with our financial performance in the second quarter of 2006,” said Ron Wirahadiraksa, president and chief financial officer. “The company is now taking initiatives to address the issues that are affecting our business … we are addressing an increase in inventory levels during a period of overcapacity [and] will continue to control inventory levels going forward.”

The flat-panel maker reported a net loss of Won322bn ($340m) in the second quarter, compared with a Won41bn profit a year earlier and the Won276bn loss expected by 14 analysts surveyed by Bloomberg News.

Compatriot Samsung Electronics, the world’s largest maker of LCDs, is due to report its results on Friday. LG Philips was hoping for a sharp increase in sales on hopes that football fans would snap up its flat-screen televisions to watch the World Cup in Germany but those hopes proved too optimistic.

Sales were in line with the Won2,300bn forecast by analysts compared with the Won2,030bn the company reported the previous year.

The company also blamed high inventories of flat screens for crimping margins. To counter this, Mr Wirahadiraksa said LG Philips would make temporary cuts to production.

“We believe that the temporisation of production, along with other efforts, will enable us to maintain our competitiveness as a top-tier player in an industry that is starting to take a more rational approach to capacity and has undiminished long-term growth prospects,” he said in the earnings announcement.

In the third quarter, LG Philips expected its average selling price per square metre to fall by about 5 per cent in the third quarter and said its earnings before interest, tax, depreciation and amortisation margin would be in the “low-teens range”.

“We have made a decision to postpone investment in existing fabs and, as a result, have revised our capital expenditure guidance downward from Won4,200bn to Won3,000bn for 2006,” Mr Wirahadiraksa said.

Shares in LG Philips, a joint venture between South Korea’s LG Electronics and Dutch company Philips, lost almost 20 per cent of their value in the second quarter as investors scaled back their expectations.

The earnings announcement came after the Korean stock market closed on Tuesday, where LG Philips shares had closed 2.58 per cent higher at Won31,800.

Some analysts were relatively unfazed, saying that bad results were expected and it was likely LG Philips had seen the worst. “In terms of the magnitude of the loss, it could mark a bottom. But I don’t think a recovery will be so quick or speedy,” said one.

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