LG Philips Reports Lackluster Q2

Korea-based TFT-LCD manufacturer LG.Philips LCD today released less than stellar Q2 results for the quarter ended June 30.

Q2 sales decreased by 6 percent to $2.45 billion (2.31 trillion Korean won) from sales of $2.6 billion (2.47 trillion KRW) in Q1 and increased 0.3 percent compared to Q2

2005 sales of $2.4 billion (2.3 trillion KRW).  Broken out, the consumer electronics player reported TFT-LCD panels for TVs, desktop monitors, notebook computers and other applications accounted for 48 percent, 26 percent, 21 percent and 5 percent of revenue, respectively, in Q2. That compares to 45 percent, 30 percent, 20 percent and 5 percent, respectively, in Q1.

LG Philips said that the sequential decline in sales was the result of an industry-wide decline in average selling prices across the TV, monitor and notebook segments, as well as less than expected sales volume growth and overcapacity.

The company experienced significant operating loss, losing $392 million (372 billion KRW) in Q2, compared to turning an operating profit of $55 million (52 billion KRW) in Q1 and an operating profit of $31 million (29 billion KRW) in Q2 2005.

EBITDA in Q2 was $256 million (243 billion KRW), down from $706 million (670 billion KRW) in Q1 and a year-over-year decline of 45 percent from $466 million (442 billion KRW) in Q2 2005.

The company also saw a drop in net income in Q2, reporting $339 million (KRW 322 billion), compared to a Q1 profit of $51 million (48 billion KRW) and a profit of $43 million (41 billion KRW) in Q2 2005.

"The second quarter was a difficult quarter for the company, as we were significantly impacted by much greater than expected industry-wide pricing weakness," Bon Joon Koo, vice chairman and CEO of LG Philips LCD, said in a statement.   Overall, the company said it shipped a total of 1.5 million square meters of net display area Q2, a 17 percent increase quarter-on-quarter, with an average selling price per square meter of $1,598. LG Philips LCD said this represents a decrease in the average selling price per square meter of net display area of approximately 19 percent compared to Q2 2005 and an average decrease of 18 percent from Q1.

Additionally, the total cost of goods sold increased 10 percent quarter-on-quarter to $2.7 billion (2.5 trillion KRW) and increased 17 percent year-on-year, primarily, the company said, as a result of increased shipments. The cost of goods sold per square meter of net display area shipped was $1,795 (1.7 million KRW) down 5 percent from Q1.

"We are disappointed with our financial performance in the second quarter of 2006," Ron Wirahadiraksa, LG Philips LCD's president and CFO, said in the statement. "As a result, the company is now taking initiatives to address the issues that are affecting our business.

"As we announced in June, we are addressing an increase in inventory levels during a period of overcapacity, primarily in the LCD TV segment, by temporizing production. We will continue to control inventory levels going forward," Wirahadiraksa added.

"We are confident that LG.Philips LCD's business results and prospects will improve over the course of 2006," he concluded.

Looking Ahead

LG Philips LCD said it expected prices to stabilize, allowing for growth in consumer demand for LCD TVs in Q4. For Q3, the company expects area shipments to increase quarter-on-quarter by a mid-to-high 20 percent range.

The company expects average selling price per square meter of net display area shipped at the end of Q3 to be relatively flat, due to increased seasonal demand leading into the holiday season. It also expects the average ASP per square meter in Q3 to decrease by a mid-single digit percentage, and its EBITDA margin for Q3 to 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 4.2 trillion KRW [$4.45 billion] to 3 trillion KRW [$3.2 billion ] for 2006," Wirahadiraksa said.