Investment plans for OLED parts that LG supplies to Apple and are used to make big-screen televisions, remained unchanged at 20 trillion Korean Won by 2020
South Korean electronics giant, LG Display Co Ltd, on Wednesday, announced its decision to slash investment plans by US$ 2.7 billion to 2020 after facing operating loss of US$ 202.2 million for the second quarter. The loss has been reported due to reducing panel prices and poor demand from television and smartphone manufacturers.
LG shares fell more than the broader market
LG’s chief financial officer (CFO), Don Kim, said that although market conditions are becoming favourable, “unpredictability is high” because “oversupply and asymmetrical competition are unavoidable.”
Due to falling panel prices that declined even more than expected, LG shares went down by 7 per cent as against the broader market’s 0.3 per cent. Speaking about the company’s decision to reduce investment plans, Kim said, “It is a conservative approach resulting from uncertainty around the mobile market.”
The company decided to trim US$ 2.7 billion without even revealing its current net and previous capex targets. Also, it hinted at adjusting production in South Korea and China due to trade disputes between Washington and Beijing. However, LG’s plan to spend 20 trillion Korean Won in OLED panels by 2020 remained unchanged, which implied that the trim is applicable only to liquid-crystal display (LCD) operations.
Analysts estimate that over 90 per cent of LG’s sales come from the LCD business is currently struggling with flagging prices and facing competition from rapidly-growing Chinese panel makers that are increasing their capacity. Data provided by the South Korean government stated that prices of 50-inch LCD panels decreased by 38 per cent in May 2018 as against the same month in the previous fiscal year (2017-18). John Ko, the analyst at NH Investment & Securities, said, “LCD industry is already in a down-cycle, which will be difficult for LG to get away from, so LG will concentrate more on OLED to differentiate.”
Even so, LG seems optimistic about making a profit in the third quarter with its focus shifting on investing in organic light-emitting diode (OLED) technology to benefit from the manufacture of large OLED TV screens.
LG’s operating loss declined to 228 billion Korean Won
A survey done by Thomson Reuters on 11 analysts suspected that LG Display’s operating loss would stand at 247 billion Korean Won. However, the company suffered slightly lesser loss at 228 billion Korean Won. Earnings in the first quarter of the current financial year (April to June) declined by 15 per cent as against the same quarter in the previous financial year when the revenues stood at 5.6 trillion Korean won.
Amidst such back to back losses, China recently gave approval to an LG joint venture to operate a new OLED factory there, eyeing to expand its OLED business towards Chinese TV makers.
Big blow for Apple
Apple’s iPhoneX – the first iPhone to use OLED technology, has seen the worst sales out of all previous iPhone releases. A report by Consumer Intelligence Research Partners said that along with other new iPhone releases such as iPhone 8 and 8 Plus, Apple only saw 16 per cent of smartphone sales in the first quarter of the current financial year (April to June ’18) – less than half of what was expected. Shares of all the new iPhones sold in Q1 of 2018 have gone down to 60 per cent versus 78 per cent in 2015, the report added.
In a previous report of ours, it was stated that LG became the second supplier of OLED parts to Apple after Samsung. However, with Apple experiencing poor iPhone sales, LG’s hope to ramp up its revenue from delivering OLED parts to Apple seems very gloom. The South Korean giant was reported to deliver two to four million units of OLED parts to Apple.
LG’s decision to reduce investment plans comes only a week after Taiwan Semiconductor Manufacturing Co Ltd (TSMC) also cut down its revenue and investment estimates.
