LG-Philips LCD losses continue

LG-Philips LCD, the world's second largest LCD maker, lost US$190m over the last three months of 2006. The Korea-based firm struggled with high manufacturing costs and falling LCD prices throughout 2006. 

The company's chief executive and several other senior executives were deposed in a reshuffle in December, after shareholders sought drastic action.

Analysts said that they were encouraged by this move and by an improvement in operating losses from US$411m in the third quarter of 2006 to US$190m in the fourth quarter, which came despite an 11 per cent increase in sales.

LG-Philips has slashed manufacturing costs by 10 percent in just three months, executives announced yesterday.

"We are encouraged by our performance this quarter and the results of the enhanced cost reduction initiatives we are implementing," said chief financial officer Ron Wirahadiraksa.

"In addition, we maintained finished goods inventory levels at slightly under three weeks at the end of the quarter.

"Further, the increasing number of long-term supply agreements we have secured reflects our continued focus on closer customer collaboration as we head into a challenging market environment in 2007."

The company will cut capital expenditure in 2007 and try instead to get better productivity out of its existing factories, according to Seoul-based industry analyst Michael Hoosik Min of Korea Investment and Securities. 

"Looking forward to 2007, we anticipate continued progress in our cost reduction efforts and expect that these strategies will reduce costs by 25 to 30 percent," said Wirahadiraksa.

However, executives admitted that the short-term outlook is poor. "Operating loss is likely to expand sharply quarter-on-quarter in the first quarter of 2007, due to lower panel shipments and a decline in average selling price," said Jeff Kim, an analyst with Hyundai Securities in Seoul. 

Comments from LG-Philips executives suggested that shipments would fall approximately five per cent in the traditionally slow first quarter, while average selling prices would fall by more than 10 percent.

Price pressure for LG-Philips' large high definition LCD TVs could come from cheaper plasma display panels (PDPs), predicted Kim.

"Matsushita has mapped out an aggressive marketing strategy for 50in PDP TVs, which are highly likely to wage a price war against 40in and 46in full-HD level LCD TVs," he said. 

Japan's Matsushita has been seen as a potential new investor in LG-Philips, although this now appears less likely following the Japanese firm's decision to spend heavily on its own PDP manufacturing expansion.

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