LG Display returned to an operating profit in the first half of this year. In the second quarter, it posted a loss after reflecting a one-off expense of 240 billion won tied to a voluntary retirement program, but the company said business results excluding this were in the black. In the second half, smartphone OLED shipments are expected to rise, while higher prices for components including semiconductors, slowing demand for information technology (IT) devices, and intensifying competition with Chinese companies are cited as performance variables.
LG Display said on the 22nd that on a consolidation basis, second-quarter revenue came to 5.6121 trillion won and it recorded an operating loss of 107.7 billion won. Revenue was similar to a year earlier and up 1% from the prior quarter. The operating loss narrowed by 8.3 billion won from 116 billion won in the second quarter of last year, but it swung to a loss compared with an operating profit of 146.7 billion won in the first quarter of this year.
Cumulative first-half revenue was 11.1461 trillion won, down 4% from the same period last year. Operating profit was 39 billion won, turning from an operating loss of 82.6 billion won in the first half of last year to a profit. First-half profit and loss improved by 121.6 billion won from a year earlier.
Second-quarter results reflected a one-off voluntary retirement expense of about 240 billion won for workforce optimization. Simply excluding this would make second-quarter operating profit about 132.3 billion won. However, because the voluntary retirement expense is also an actual expense, how much future labor cost savings materialize will be key to improving profitability.
Kim Sung-hyun, LG Display chief financial officer (CFO), said on an earnings conference call that day, "Excluding the one-off expense, second-quarter business performance was profitable," and "We view it as meaningful that we have broken out of the second-quarter losses that repeated over the past four to five years." He added, "Through the second quarter, we achieved the outcomes planned at the start of the year."
The company took a cautious view on the second-half outlook. LG Display's results typically carry more weight in the third and fourth quarters, when smartphone makers' new product launches are concentrated. However, this year it sees higher component prices such as semiconductors, geopolitical uncertainties, and raw material price swings potentially affecting finished goods demand.
Kim, the CFO, said, "In the third quarter this year, there are more uncertainties than usual, such as semiconductors, geopolitical issues, and rising raw material prices," and "We will push to achieve planned business outcomes through cost reductions and production technology improvements."
Smartphone OLED is seen as a business that could drive second-half results. LG Display said its market share in smartphone panels is expanding and plans to maximize use of existing production infrastructure to meet growing demand. It is also reviewing preemptive investment in new technologies.
However, higher smartphone production costs pose a burden as they could lead to finished goods price hikes or slower sales. High revenue reliance on certain customers and on second-half new product launches could also increase volatility. The company plans to maintain its current level of profitability through production and operation efficiencies and cost reductions, and to support customers' new product competitiveness through new technology development.
Baek Seung-yong, LG Display small-size business planning and management head, said, "We are fully aware of concerns about rising component unit prices in upstream industries," and "We will sustain solid profitability through technology-based cost innovation and production and operation efficiencies."
The mid-size panel business for IT must respond simultaneously to slowing demand and product transition. If higher component prices such as semiconductors push up prices of IT finished goods like laptops and tablets, consumer demand could weaken. While IT liquid crystal display (LCD) shipments and revenue are also decreasing, the trend among major customers to move products from LCD to OLED continues.
In the second half, LG Display will increase the share of differentiated products and high-end customers, and cut back on low-profit products. By operating supply flexibly while pursuing cost reductions, it aims to improve mid-size business profitability from last year.
However, reducing low-profit LCD volume helps improve the product mix but can lead to declines in overall shipments and revenue. For IT OLED as well, depending on the pace of market growth and the extent of customer adoption, utilization rates of existing production lines and investment efficiency can vary. The company is reviewing production strategies that can reduce investment burdens, including using existing fabs rather than expanding new facilities.
Ahn Yu-shin, LG Display mid-size business planning and management head, said, "With component price increases and set price hikes, second-half demand uncertainty is high," and "We will upgrade the customer structure around high-end and aggressively reduce low-profit products."
In the large-size OLED business, it will increase the share of gaming monitors, which are growing faster than TVs. LG Display projected that the monitor share within total large-size OLED shipments will rise from the low-10% range last year to about 20% this year. It also expected monitor shipment growth to continue next year.
Expanding OLED monitors is a factor that can offset TV demand swings and raise utilization of large-size OLED production lines. The company plans to adjust the production split between TVs and monitors to match demand and profitability, and to maximize use of existing capacity to meet second-half demand.
The challenge for the large-size business is intensifying competition in the premium TV market. As Chinese display and TV companies expand mini LED and RGB-based products, competition in both picture quality and price is heating up. Although the OLED monitor market is growing rapidly, its share of total large-size OLED shipments is about 20% this year, which has limits in fully offsetting weak TV demand.
LG Display plans to respond to the premium TV market with products that have differentiated technology and cost competitiveness, and to expand gaming monitor customers and lineups. However, the extent of second-half earnings improvement will likely depend on how much the smartphone OLED peak-season effect, IT demand, and large-size OLED product mix improvements translate into actual shipments and profitability.