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January 16, 2007 8:39 pm

LG Philips LCD faces oversupply

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LG Philips LCD, the world’s second largest flat screen maker, said Tuesday the market environment this year would remain “challenging” as panel prices are expected to continue falling amid an industry-wide oversupply.

The company – a joint venture between South Korea’s LG Electronics and Philips, the Dutch electronics group – anticipated a mid-single digit percentage decrease in first quarter shipments and a low-teens percentage decline in average sales prices.

The gloomy forecast came after the Korean company reported a third straight quarterly loss due to lower panel prices and high production costs.

It reported a net loss of Won174bn ($186m) in the fourth quarter, which was smaller than the Won321bn loss in the previous quarter. It swung from a Won517bn profit in 2005 to a Won769bn loss for the full year.

“We are encouraged by our performance this quarter and the results of the enhanced cost reduction initiatives we are implementing,” said Ron Wirahadiraksa, chief financial officer of LG Philips.

He said the company reduced its inventory levels to under three weeks at the end of last year and forecast a 20 per cent to 30 per cent cost reduction in 2007.

LG has reduced its capital expenditure from Won3,035bn last year to about Won1,000bn this year, as it struggles with heavy losses. The quarterly results were in line with market expectations, but were in sharp contrast with rival Samsung Electronics, which reported Won310bn in fourth quarter operating profit from its liquid crystal display division.

Analysts said a turnround was not likely to happen in the short term, due to weak seasonality in the first half and a slow increase in production of the company’s seventh-generation plant, which began to produce large-size TV panels at the beginning of last year.

“The company is expected to remain in the red in the first half as monitor prices are likely to fall below production cost and TV prices are likely to drop in the first quarter,” said James Kim at Lehman Brothers.

“It will suffer more than others because of a lack of brand power and a limit in cost-cutting.”

Mr Kim predicted that the company would return to profit in the fourth quarter.

Ahead of the announcement LG Philips shares closed up 1 per cent at Won29,200.

The shares fell 11 per cent in the October-December period due to uncertainties over who will become LG’s next partner once Philips sells its 33 per cent stake.

LG Philips is under pressure from an international probe into allegations that it conspired with Samsung, Sharp and others to fix LCD panel prices.

The company replaced its chief executive last month to tide over current difficulties.

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