Ninefold surge in LG Philips profits

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Stronger demand for large flat-panel televisions helped LG Philips LCD, the world’s second largest manufacturer, to increase net profit more than ninefold in the fourth quarter.

Global sales of flat panel displays showed an upturn in the second half of last year, as prices recovered in some areas. But there is growing concern in the industry about a possible return to oversupply this year, because of a rapid increase in capacity.

Koo Bon-joon, LG Philips LCD’s chief executive, said: “During the fourth quarter, LCD TV panel demand was strong as consumers are rapidly recognising LCD technology as ‘the’ flat TV technology of choice.”

The group, a joint venture between South Korea’s LG Electronics and Philips of the Netherlands, reported net profit of Won328bn ($338m) in the October-December period, compared with Won35.4bn for the same period a year ago. Sales rose to Won2,963bn from Won1,933bn.

LG Philips LCD expects the momentum to continue this year on the back of the football World Cup and the Winter Olympics. Ron Wirahadiraksa, the company’s president, said: “We are looking forward to 2006, as the recent start of mass production of our P7 facility, which is optimised for large and wide 42-inch and 47-inch LCD TV panels, reinforces our already strong position in the . . . industry.”

He forecast LG Philips LCD’s shipments would increase by a mid-single digit percentage rate in the first quarter from the previous quarter, driven by continued growth in the TV segment, while its average selling price would fall by the same margin due to weaker pricing for monitors and notebook computers.

However, concerns over first-quarter profit margins hit the company’s American depositary receipts. They fell by up to 10 per cent in morning trading in New York. In Seoul, where the announcement came after the market close, the shares were up 0.5 per cent.

Analysts fear rapid growth in LCD production capacity could lead to an oversupply of panels this year.

“We see a mild oversupply in the first half,” said James Kim, an analyst at Lehman Brothers, warning that prices of large-size TV panels above 40 inches may fall below cost due to increasing competition with plasma display panels.

He said LCD makers should slow down plans to expand capacity to prevent a supply glut.

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