LG Display, the world’s second-largest flat panel maker by sales, slashed its capital expenditure for this year by 18 per cent on Thursday and said it would cut output, as flat panel prices show no signs of a recovery amid oversupply and slowing demand.
The spending cut came as the display maker reported a 96 per cent drop in second-quarter net profit. The South Korean company presented a downbeat outlook for the industry, saying that it did not expect a “meaningful” recovery in demand for liquid crystal display screens, which are used in mobile phones, televisions and tablet computers, until early next year.
“As uncertainties over market demand persist in the third quarter, we expect customers to maintain a conservative approach to their inventory strategy,” James Jeong, the company’s chief financial officer, said in a statement.
LG Display, which is competing with domestic rival Samsung Electronics for the industry’s top position, cut its 2011 capital spending budget to about Won4,500bn from its previous plan of Won5,500bn ($5.2bn).
The company reported an operating loss for a third straight quarter, with Mr Jeong blaming slow demand for TVs worldwide. “TV demand was weak not just in western Europe and North America, but also in China,” he told analysts, noting that growth in demand for TVs in China in the first half was only about 15 per cent compared with the same period a year earlier, much lower than market expectations of about 30 per cent.
“Demand will increase as we move into the September and October period, but it is difficult to expect a dramatic upturn in the supply and demand balance until early next year,” he added.
The company swung to a net profit of Won21bn in the April-June period from a Won115bn loss in the previous quarter, thanks to deferred tax assets, but it still reported an operating loss of Won48.3bn. It posted a Won555bn net profit a year earlier.
LG Display was the first company to report second-quarter earnings in the display industry. Analysts said it was likely to outperform its peers thanks to its LCD panel supplies to Apple, which reported an 82 per cent jump in quarterly sales this week. on the back of strong demand for its iPads and iPhones.
“Its operating loss must be the smallest in the industry as its LCD supplies to Apple are quite profitable,” said Yoo Jong-woo, an analyst at Korea Investment & Securities.
Mr Yoo forecast LG Display to return to an operating profit in the third quarter as market conditions improve gradually in the second half with LCD producers cutting output and capital expenditure although the slowing global economy casts shadow on TV demand.
Shares of LG Display closed down 1 per cent at Won30,250 on Thursday, while Seoul’s benchmark Kospi index fell 0.5 per cent.