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LG Display Slides Ahead of Earnings, Outlook Dims

Shares in LG Display tumbled as much as 5.6 percent early Wednesday ahead of its quarterly earnings announcement, as concerns mounted over weakening margins and an earlier-than-expected industry downturn.

A South Korean man walks past near the LG electronic's LCD and PDP products at the Yongsan Electronic shop in Seoul, Friday, April 7, 2006. LG Philips LCD company, headquartered in Seoul, manufactures liquid crystal display panels for mobile phones, notebook computers, desktop monitors, and high-definition television panels is scheduled to issue an earnings report Tuesday, April 11, 2006. (AP Photo/ Lee Jin-man)
Lee Jin-man
A South Korean man walks past near the LG electronic's LCD and PDP products at the Yongsan Electronic shop in Seoul, Friday, April 7, 2006. LG Philips LCD company, headquartered in Seoul, manufactures liquid crystal display panels for mobile phones, notebook computers, desktop monitors, and high-definition television panels is scheduled to issue an earnings report Tuesday, April 11, 2006. (AP Photo/ Lee Jin-man)

Investors in the liquid crystal display (LCD) sector have turned more cautious as a global economic slowdown threatens to depress consumer demand for large flat-screen TVs and wide-monitor PCs, while falling panel prices pressure margins.

LG Display, the sector's No. 2 player, is expected to report after Wednesday's market close a second-quarter net profit of 752 billion won (US$735 million), more than triple the 228 billion won earned a year earlier.

But analysts believe earnings peaked last quarter and LCD makers are headed for a prolonged slump. Usually the industry reports its highest earnings in the third quarter and a seasonal downturn begins at the end of the year.

Industry watchers expect the strong margins for panels used in computer monitors in particular to fall.

"Earnings in the second half will be lower than the first half's," said Jason Kang, an analyst at Daewoo Securities. "Panel prices have fallen rapidly in June and July."

Lehman Brothers forecast in a research note this week that price cuts would persist through the first half of next year, with monitor panel prices set to drop nearly 40 percent and TV screen prices to decline 30 percent during the period.

Shares in LG Display were down 4.64 percent to 34,950 won in the morning session, against the wider market's 1.34 percent gain.

Taiwan's top LCD maker AU Optronics also fell 2.56 percent to T$43.75, compared with a 2.21 percent gain in the Taipei market. Smaller rival Chi Mei Optoelectronics lost 0.46 percent
to T$32.40.

Some analysts expect makers to take actions to defend panel prices in light of the weakening outlook.

"There may well be an industry-wide output cut in the second half," Kang said. "There are a lot of scary scenarios in the market but once they see a bottom, share prices could recover."