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Business trends

Asian panel makers suffer sudden downturn in earnings

Heavyweights Samsung, LG and AUO misread smartphone demand

An LG Display LCD panel plant on the outskirts of Seoul. (Courtesy of LG Display)

SEOUL/TAIPEI/TOKYO -- South Korean and Taiwanese panel makers endured reversals in the January-March quarter as related earnings tumbled due to sliding market conditions and miscalculations about demand linked to Apple iPhones.

Samsung Electronics logged a 68% plunge in operating profit on the year for its display segment, falling to 410 billion won ($379 million) for the lowest total in seven quarters. The South Korean manufacturer controls about 90% of the global market for small and midsize organic light-emitting diode panels. Overall operating profit still reached a record 15.64 trillion won thanks to a brisk semiconductor business, the company said Thursday.

But a sudden slowdown has struck these small and midsize panels, which are used in applications such as smartphones and automobiles. The smaller versions generate roughly 70% of display sales at Samsung. The company initially projected shipping 45 million to 50 million OLED panels for the iPhone X in the quarter, but is believed to have actually shipped less than 20 million. Some project that volume will slide to about 15 million in the April-June period.

LG Display announced Wednesday an operating loss of 98 billion won in the January-March period, sinking from a 1.02 trillion won profit in the year-ago quarter for the South Korean company's first loss in six years. The global leader in large liquid crystal display panels and the No. 2 player in small and midsize models generated a record operating profit in 2017, supported by higher prices stemming from a tighter market. But prices fell 11% in the first quarter from three months before.

Operating profit for Taiwanese panel maker AU Optronics shrank 75% on the year to 2.9 billion New Taiwan dollars ($97.6 million) in the first quarter, the company said Thursday.

LG Display and AUO struggled with liquid crystal displays amid a global slowdown in the smartphone market. Smartphone shipments in China decreased in 2017.

LCD panels used in televisions also lack momentum, with a source from an electronics maker expecting the market to remain harsh in the current quarter.

Overestimates of iPhone X display shipments hurt Samsung Electronics' panel segment in the January-March quarter.   © Reuters

The panel industry rode a tailwind through early 2017 on strong Chinese and American demand for large TVs. But interest slowed thereafter, and higher output by Chinese manufacturer BOE Technology Group eroded prices. The company opened state-of-the-art LCD production facilities at the end of last year, and shipments there gradually increased alongside improvements in production yields.

Shares of LG Display have declined more than 30% from a high reached in July amid the earnings decline. Samsung's stock has dipped over 10% from a peak in November. The companies have no choice but to revisit their panel strategy.

LG Display plans 9 trillion won in capital investment for 2018. But the company will adjust the spending for both the OLED and LCD operations based on customer trends, Chief Financial Officer Kim Sang-don said. A 7.8 trillion won investment announced last year in South Korean OLED facilities may be re-examined.

LG holds over a 90% global share in large OLED panels used in televisions. The company had aimed to turn the organic light-emitting diode business profitable while LCD operations remain strong. But Kim referred to current conditions as "a state of emergency."

Samsung's capital investment in its display business rose 37% last year to 13.54 trillion won. Plans for 2018 remain undisclosed but a source familiar with the matter said the investment probably would decrease this year.

Market observers in South Korea expect Samsung's OLED business to rebound as early as the July-September quarter, when the company begins shipping panels for new iPhones. But a slow recovery could put Samsung's dominance at risk, as BOE moves to spend large sums in its small and midsize OLED operations.

Taiwanese manufacturers that cannot compete with mainland and South Korean rivals in scale, like Innolux -- which boasts Hon Hai Precision Industry as a shareholder -- may focus on niche markets such as medical equipment.

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