LG.Philips LCD Co, the world's largest maker of liquid crystal displays, and rival producers may report quarterly profit declines after a glut caused prices to slump in the US$35 billion industry.
LG.Philips may report tomorrow in Seoul that third-quarter net income fell 25 percent from a year ago to 218 billion won (US$209 million), the fifth straight drop, according to the median estimate of 10 analysts surveyed by Bloomberg News. Earnings from LCDs at No. 2 maker Samsung Electronics Co and profit at Chi Mei Optoelectronics Corp (奇美電子) may also have declined, the survey showed.
Makers of flat screens for televisions and computer monitors, which spent a record US$13 billion on plants and equipment last year, may face oversupply every quarter for at least three more years, according to researcher DisplaySearch. Sliding earnings may force companies to seek mergers and curtail spending, investor Brad Aham said.
"My hope is that weaker players decide to exit the business and then overall industry profitability is more stable," said Aham, who manages the US$1.1 billion SSgA Emerging Markets Fund at State Street Global Advisors in Boston. "You need to see some consolidation before getting too enthusiastic." Shares of LG.Philips, controlled by Royal Philips Electronics NV of the Netherlands and Korea's LG Electronics Inc, have fallen 6.4 percent in the past three months. Both AU Optronics Corp (友達光電), the world's third-largest LCD maker, and No. 4 Chi Mei have dropped 14 percent as of Sept. 30.
Shares of South Korea's Samsung Electronics, which generated 85 percent of its sales and more than 99 percent of operating income from non-LCD products during the first half, have risen 13 percent.
LG.Philips, the industry's first company to report earnings for the latest quarter, hasn't posted a profit increase since the second quarter of 2004, when it reported record earnings. Excluding affiliates, third-quarter operating profit may have fallen 11 percent to 218 billion won as sales increased 28 percent to 2.35 trillion won, according to the Bloomberg survey.
Suwon-based Samsung may report operating income from its LCD business fell 15 percent to 195 billion won, the fourth consecutive decline, according to the survey. Sales probably rose 30 percent to 2.46 trillion won.
While AU Optronics may report third-quarter net income rose 16 percent to NT$4.8 billion, profit margin likely fell to 8.1 percent of revenue, compared with 11 percent a year earlier, according to the Bloomberg survey. Chi Mei may report net income probably fell for a fourth quarter, dropping 29 percent to $2.4 billion won. Its profit margin probably slid to 5.8 percent from 14 percent a year earlier, according to the survey.
Hsinchu-based AU Optronics is scheduled to report earnings on Oct. 25 and Tainan-based Chi Mei on Nov. 3. Sharp Corp, Japan's largest LCD maker, is scheduled to report earnings on Oct. 26. Samsung reports results Oct. 14.
Average third-quarter prices of panels used in desktop computers, which account for more than half of demand, fell 21 percent from a year ago, according to estimates last month by researcher DisplaySearch. LCD TV and notebook panel prices have also dropped, according to the researcher.
Panel makers, which spent a record US$13 billion on plants and equipment last year, will probably invest US$31 billion from this year until 2008 and the industry may face oversupply every quarter for at least three more years.
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