On the afternoon of July 25th, Beijing time, LG Display (LG DISPLAY) announced its second quarter earnings report for 2018. According to the financial report, LG Display’s revenue fell 15% year-on-year to 5.6 trillion won ($4.9697 billion); operating loss was 228 billion won (about $202.1 million). This is the company‘s two consecutive quarters of losses.
According to a recent investigation by Thomson Reuters, analysts on average expected the company’s quarterly loss of 247 billion won (about 219.2 million US dollars).
Reuters pointed out that LG showed a loss because of the uncertainty faced by the global panel industry, coupled with the expansion of production capacity by Chinese companies, resulting in lower panel prices and shrinking corporate profits. The structural oversupply of the panels and the fierce competition between manufacturers may continue.
At the same time, LG Display announced that its investment plan before 2020 will reduce 3 trillion won (about 2.7 billion US dollars) due to concerns about the poor performance of the global smartphone market, but did not disclose its previous capital expenditure target. The company also warned that they may adjust production in South Korea and China to cope with the current international situation. Reuters believes that reducing investment plans indicates that the company is bearish on the market outlook.
“Because of the uncertainty in the mobile market, we have adopted this conservative approach,” LG Display Company CFO Don Kim said in a earnings conference call.
The previous week, another Apple supplier, TSMC, also lowered its revenue and investment expectations.
But LG showed that the compression of capital expenditures will not affect its plan to accelerate from liquid crystal panels to OLED panels. The plan to invest about 20 trillion won to produce OLED panels by 2020 will not change. In other words, the main factor affected by this is the LCD panel business.
China recently approved LG Display’s joint venture to open a new OLED plant in the region, which the company hopes will expand its panel sales in the Chinese TV market.
OLED panels have yet to generate profits for LG Display, but the company said it will contribute profits in the third quarter. LG Display will focus on OLED technology, with a focus on large-size OLED TV panels.
The transformation comes at a time when the traditional LCD business is cutting prices due to the expansion of production capacity by Chinese panel companies. Analysts estimate that LCD panels account for more than 90% of LG Display’s revenue.
According to data from the South Korean government, the price of 50-inch LCD panels fell 38% year-on-year in May this year. John Ko, an analyst at NH Investment & Securities, said: “The LCD industry has entered a down cycle, and LG is hardly unaffected, so we will use OLEDs to differentiate.”