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Electronics

LG Display 'survival at risk,' CEO warns as loss hits

World's top LCD maker struggles against Chinese supply glut

Chinese competitors are poised to encroach on LG Display's dominance in OLED displays for televisions.   © Reuters

SEOUL -- An oversupply of LCD panels stemming from China pushed LG Display, the world's largest supplier, into a rare third-quarter loss that underscores the tough choices facing the industry's remaining players.

The South Korean company on Oct. 23 announced a 437 billion won ($372 million) operating loss for the July-September period. Sales shrank 4.6% from a year earlier to 5.82 trillion won.

A week earlier, new CEO Jeong Ho-young warned in his first message to employees that the "company's survival is at risk."

This is LG Display's first operating loss for a third quarter in eight years. The three months through September have generally been a bright spot for the manufacturer since the period coincides with increased panel supplies to Apple ahead of the release of new iPhones.

Ramped-up Chinese production of liquid crystal display panels for TVs has put downward pressure on LCD prices, driving Taiwanese and Japanese suppliers out of the race to add capacity. The average price per TV panel has fallen by 20% to 30% from a year ago.

Although British research firm IHS Markit expects demand for LCDs to rise 5% this year, supplies are expected to grow 10%.

"This is the worst supply glut in history," said an industry source. "Nobody will be able to secure a profit."

BOE Technology Group, China Star Optoelectronics Technology and other Chinese panel makers have built new factories with government backing. In about four years, China has outstripped Japan, Taiwan and South Korea in terms of LCD production capacity.

A single display plant typically requires over $4 billion in investments. Japan Display, the world's largest smartphone LCD maker that is struggling to secure a bailout, and Taiwan's AU Optronics, a major supplier of TV panels, have already bowed out of the race to increase production.

LG Display and South Korean peer Samsung Electronics are the only companies left to challenge Chinese rivals. Samsung, whose semiconductor business had an operating profit of about $44 billion in 2018 alone, is using its deep pockets to invest $11 billion in next-generation quantum-dot displays, which are based on organic light-emitting diode technology.

On the other hand, LG Display raised only around 800 billion won in August in an effort to finance expanded OLED production. The new CEO, Jeong, an LG Display chief financial officer who later went on to head LG Chem, was called back in part to help formulate a financial strategy for competing with Samsung and the Chinese.

Based on LG Display's cash flow, it is unclear whether the company can keep up with Samsung and Chinese competitors in terms of investment.

LG Display makes LCD and OLED displays for both smartphones and TVs. The multipronged approach has stretched research and development funding and capital spending thin.

The company "should suspend domestic LCD plants" now that it is losing money, said an analyst in South Korea.

OLED displays are expected to lead a turnaround, but the pathway is not guaranteed. LG Display's OLED panels were adopted for Apple's latest iPhone models, but at less than a tenth the scale of what Samsung supplies.

Samsung plans to produce 500 million OLED panels a year, including for devices under its own brand. There is no perceivable strategy that would allow LG Display to compete in this area.

LG Display controls a near monopoly in supplying OLED panels for TVs, but the prospects there appear questionable as well. Last year, the global market for OLED TVs amounted to about 2.5 million units, a tiny fraction of the 200 million units for LCD models. Samsung and Chinese rivals plan to invest in mass-producing OLED TV panels too, which would inevitably lead to lower prices.

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