Falling TV prices hurt LCD giant.
LG Philips LCD, the world's second largest LCD manufacturer, announced a $335m loss in its most recent quarter, despite a 20 per cent increase in sales revenue.
The size of the loss, blamed on a steep fall in LCD TV prices, was greater than predicted by market watchers.
"Third-quarter results failed to meet our original expectations mainly because of a steeper than expected fall in LCD panel prices for televisions," said LG Philips chief executive Koo Bon-joon.
The company is moving ahead with cost cutting measures, but analysts are sceptical of any short-term improvements.
"Even if quarterly operating losses are reduced, clear profitability improvement is unlikely," said Jeff Kim of Hyundai Securities in Seoul, adding that LG Philips is likely to remain in the red until the second quarter of next year.
Analysts forecast that panel prices will rise by approximately five per cent by the end of the year, providing some respite for manufacturers, but they do not believe this will be enough to have a meaningful impact on LG Philips' profitability.
The company's cost cutting moves centre on a decision to drastically cut 2007 capital expenditure by some $2bn, or almost 70 per cent compared to this year.
This could provide a breather for an LCD industry facing over-capacity problems, observers believe.
"We think that the announcement further decreases the risk of the LCD industry facing deterioration in the supply/demand balance in the second half of 2007," said Nomura Securities analysts in a research briefing published today.
However, the cut in spending on expansion, while necessary, is seen as a risky step for LG Philips.
"We believe this is a realistic move in response to its lacklustre cash flow going forward, but it will emerge as a negative factor to weaken LG Philips LCD's market competitiveness in the long run," said Kim.
Analysts see the cut in expenditure as part of a general retrenchment in the LCD TV industry. As profit margins slide, expansion capital is becoming increasingly hard to find for LCD makers without major customers.
As a result, analysts now predict that new advanced LCD screen technology will reach the mass TV market more slowly than expected.