LG.Philips LCD swings to Q1 profit, glut a worry

SEOUL, AprB 11 (Reuters) Flat-screen maker LG.Philips LCD Co. Ltd. swung to a profit in the first quarter, helped by growing sales of TV panels, but earnings fell from the previous quarter due to weaker panel prices.

South Korea-based LG.Philips, the world's biggest maker of large liquid crystal display (LCD) panels, said it expected LCD selling prices to drop by a ''mid-to-high single digit percentage'' in the second quarter after a 7.5 percent decline in the first quarter.

The panel glut is expected to persist throughout the year and keep margins thin, as makers are aggressively boosting capacity, betting on a surge in demand for large, sleek LCD televisions.

Analysts expect the sector to hit a bottom in the second quarter.

''It seems that LCD and PDP makers are making the utmost efforts to grab a bigger market share, rather than boosting profitability,'' said Lee Kyu-hong, fund manager at PCA Asset Management. PDP (plasma display panel) is another type of flat display based on a different technology.

''The sector is probably not a good investment for now.'' LG.Philips, which competes with rival Samsung Electronics Co. Ltd.

and Taiwan's AU Optronics Corp., has been hit by weak prices of monitors and notebook panels, for which demand is usually slow in the first half.

LG.Philips's margin on earnings before interest, tax, depreciation and amortisation (EBITDA) fell to 27 percent, down from 28 percent in the fourth quarter but higher than 13 percent a year earlier.

However, it forecast a sharp drop in its second-quarter EBITDA margin to around 20 percent.

LG.Philips posted a 48 billion won ( million) net profit in the first quarter, just missing an average forecast of a 52.3 billion won profit from 10 analysts surveyed by Reuters.

The result compares with a 78.8 billion won loss a year earlier and a net profit of 327.8 billion won in the October-December quarter.

Sales on a consolidated basis were 2.47 trillion won, compared with 2.06 trillion a year earlier.

BIG EXPANSION PLANS A ramp-up in a new TV panel line, which began mass production in January, could help drive LG.Philips's sales growth, although depreciation costs are set to linger.

DisplaySearch has forecast shipments of LCD TV panels will exceed 48 million units globally this year, up more than 70 percent from 2005.

LG.Philips's shipments in the second quarter is expected to rise by a ''mid-to-high twenties percentage'' from the first quarter, the company said. That compares with a 5 percent drop in the first quarter.

Shares in LG.Philips, the country's ninth-biggest firm with .4 billion in market value, fell 2.26 percent to 41,050 won, underperforming a 0.87 percent decline in the main index The stock rose 1.98 percent in the first quarter, outperforming the market's 1.43 percent fall.

The result comes as LCD makers announce joint investment plans and seek tie-up to survive margin-crushing competitions.

Samsung and Japan's Sony Corp. announced on Monday a SEOUL, AprB 11 (Reuters) Flat-screen maker LG.Philips LCD Co. Ltd. swung to a profit in the first quarter, helped by growing sales of TV panels, but earnings fell from the previous quarter due to weaker panel prices.

South Korea-based LG.Philips, the world's biggest maker of large liquid crystal display (LCD) panels, said it expected LCD selling prices to drop by a ''mid-to-high single digit percentage'' in the second quarter after a 7.5 percent decline in the first quarter.

The panel glut is expected to persist throughout the year and keep margins thin, as makers are aggressively boosting capacity, betting on a surge in demand for large, sleek LCD televisions.

Analysts expect the sector to hit a bottom in the second quarter.

''It seems that LCD and PDP makers are making the utmost efforts to grab a bigger market share, rather than boosting profitability,'' said Lee Kyu-hong, fund manager at PCA Asset Management. PDP (plasma display panel) is another type of flat display based on a different technology.

''The sector is probably not a good investment for now.'' LG.Philips, which competes with rival Samsung Electronics Co. Ltd.

and Taiwan's AU Optronics Corp., has been hit by weak prices of monitors and notebook panels, for which demand is usually slow in the first half.

LG.Philips's margin on earnings before interest, tax, depreciation and amortisation (EBITDA) fell to 27 percent, down from 28 percent in the fourth quarter but higher than 13 percent a year earlier.

However, it forecast a sharp drop in its second-quarter EBITDA margin to around 20 percent.

LG.Philips posted a 48 billion won ($50 million) net profit in the first quarter, just missing an average forecast of a 52.3 billion won profit from 10 analysts surveyed by Reuters.

The result compares with a 78.8 billion won loss a year earlier and a net profit of 327.8 billion won in the October-December quarter.

Sales on a consolidated basis were 2.47 trillion won, compared with 2.06 trillion a year earlier.

BIG EXPANSION PLANS A ramp-up in a new TV panel line, which began mass production in January, could help drive LG.Philips's sales growth, although depreciation costs are set to linger.

DisplaySearch has forecast shipments of LCD TV panels will exceed 48 million units globally this year, up more than 70 percent from 2005.

LG.Philips's shipments in the second quarter is expected to rise by a ''mid-to-high twenties percentage'' from the first quarter, the company said. That compares with a 5 percent drop in the first quarter.

Shares in LG.Philips, the country's ninth-biggest firm with $15.4 billion in market value, fell 2.26 percent to 41,050 won, underperforming a 0.87 percent decline in the main index The stock rose 1.98 percent in the first quarter, outperforming the market's 1.43 percent fall.

The result comes as LCD makers announce joint investment plans and seek tie-up to survive margin-crushing competitions.

Samsung and Japan's Sony Corp. announced on Monday a $2 billion expansion of a joint LCD plant as they seek a bigger share of the market for larger LCD TVs.

AU Optronics, the third-biggest LCD maker, also announced on Friday it would acquire smaller local rival Quanta Display Inc. to compete with leading Korean makers.

LG.Philips is forecast to post net profit of 690 billion won in 2006, up 33.5 percent from the 517 billion won earned in 2005, according to a median forecast from Reuters Estimates.

Demand for large LCD panels used in personal computers is expected to rise 50 percent over the next three years, while demand for LCD panels for TVs is projected to jump more than threefold, according to DisplaySearch.

REUTERS CS PM1451 billion expansion of a joint LCD plant as they seek a bigger share of the market for larger LCD TVs.

AU Optronics, the third-biggest LCD maker, also announced on Friday it would acquire smaller local rival Quanta Display Inc. to compete with leading Korean makers.

LG.Philips is forecast to post net profit of 690 billion won in 2006, up 33.5 percent from the 517 billion won earned in 2005, according to a median forecast from Reuters Estimates.

Demand for large LCD panels used in personal computers is expected to rise 50 percent over the next three years, while demand for LCD panels for TVs is projected to jump more than threefold, according to DisplaySearch.

REUTERS CS PM1451