The cost innovation pushed by Jeong Chul-dong, president of LG Display, since taking office is translating into improved results. LG Display's cost of goods sold (COGS) ratio, which was 98.4% on a full-year basis in 2023, fell to 86.9% last year and dropped further to 86.3% in the first half of this year. If about 98 won out of every 100 won in sales went to costs in 2023, it has recently decreased to about 86 won, clearly improving the revenue structure.
Observers say it is hard for Korea's display industry to grow in size as Chinese companies wage a low-price offensive and demand for TVs and IT devices stagnates. The industry views this environment as one where raising the share of high–value-added products and lowering manufacturing costs are key to defending profitability. Right after taking office, Jeong declared, "We will put a strong drive behind cost innovation across the business," and pursued: ▲ winding down the large liquid crystal display (LCD) business ▲ shifting the business structure to center on organic light-emitting diode (OLED) ▲ reducing low-revenue products ▲ and streamlining workforce operations. The company also applied artificial intelligence (AI) to development and production to boost manufacturing efficiency. Such strengthening of fundamentals is seen as jointly driving the drop in the COGS ratio and the recovery in profit and loss.
According to the Financial Supervisory Service's electronic disclosure system on the 20th, LG Display's first-half sales this year were 11.1461 trillion won and COGS was 9.6165 trillion won. Based on this, the COGS ratio was 86.3%, down 3.0 percentage points from 89.3% in the first half of last year. While first-half sales fell 4.3% year over year, COGS decreased 7.5%, turning operating results from a 82.6 billion won loss to a 39.0 billion won profit.
The annual COGS ratio trended down from 98.4% in 2023 to 90.3% in 2024 and 86.9% last year. In 2024, the first year Jeong managed the full year after taking office, sales were 26.6153 trillion won, and last year they decreased 3.0% to 25.8101 trillion won. In contrast, operating results swung from a 560.6 billion won loss to a 517.0 billion won profit over the same period. In the first half of this year as well, profit and loss improved by 121.6 billion won year over year.
◇ After taking office, shifting away from LCD and reshaping with OLED and AI
Jeong took the helm right after LG Display logged a cumulative 4.5952 trillion won operating loss over 2022–2023. After taking office, Jeong made cost innovation a core task and focused on reshaping the business fundamentals. The approach is to cut the share of commoditized LCDs, where price competition is fierce, and concentrate resources on OLEDs and high-end products with relatively higher added value.
LG Display completed the sale of its large LCD plant in Guangzhou, China, last April and exited the related business. OLED's share of total sales rose from 32% in 2020 to 55% in 2024 and to an all-time high of 61% last year. In the IT business, the company is also reducing low-revenue volumes while expanding the share of high-end customers and differentiated products. For large OLEDs, it is pursuing a strategy of flexibly adjusting TV and gaming monitor output to match market conditions and profitability.
The company also made decisions to streamline workforce operations. With a voluntary retirement program this year, the headcount at the end of the first half was 23,490, down 1,567 from 25,057 a year earlier. About 240 billion won in related expense was reflected as a one-off in the second-quarter results, but the company aims to lower its fixed-cost burden over the mid to long term through a leaner organization.
Efforts to use technology to make development and production themselves more efficient are another pillar of cost innovation. In 2024, LG Display introduced an in-house developed AI production system to its OLED lines. By analyzing process data to find the root causes of quality issues and suggesting optimal conditions, it cut the time to fix problems from an average of three weeks to two days. In August last year, the company disclosed companywide AI transformation (AX) results, saying it achieved more than 200 billion won in annual expense savings by boosting the output of good units, among other effects.
The company is also widening AI use in design. In June last year, it completed development of an edge-design algorithm for irregular display panels, enabling drawings that took humans about a month on average to be produced in eight hours. It also prepared a Digital Twin panel tool using Nvidia's physics-based AI platform "PhysX NEMO," building a system to verify process conditions before applying them to actual production lines.
◇ Despite chipflation, Q2 cost ratio down 4.5 percentage points… materials and supplies purchases fall
This year, the electronics industry is facing higher expense burdens due to rising prices of memory and some raw materials. On the 3rd, market research firm TrendForce projected that contract prices for mobile DRAM in the third quarter will rise 8%–13% from the prior quarter. It said production capacity is concentrated on AI server products, keeping mobile memory supply tight.
So-called "chipflation" (chips + inflation) is cited as a factor increasing cost burdens for smartphone and PC makers, LG Display's key customers. If finished goods companies cannot fully pass higher component prices on to consumer prices, profitability worsens, and that burden can spill over into production adjustments or demands to cut panel prices, the industry says. For display makers, that could mean facing both weaker downstream demand and price pressure.
Even amid such expense pressure, unit prices for some key materials and parts that LG Display buys declined. In the first half, purchase prices for polarizers fell about 4% from the end of last year, while driver ICs and backlights each dropped around 2%. Printed circuit boards (PCBs) rose about 2%. LG Display said technological innovation, improved supply-demand conditions in the supply chain, and greater competition in parts markets helped cut materials costs.
LG Display's first-half materials and supplies purchase expense was 4.3780 trillion won, down 7.1% from a year earlier. Over the same period, Samsung Display rose 15.1%, LG Innotek 34.2%, and Samsung Electro-Mechanics 21.4%. Finished goods makers Samsung Electronics' Device eXperience (DX) institutional sector and LG Electronics also increased 6.3% and 9.0%, respectively.
An LG Display official said, "We will continue to drive performance improvement and solidify a stable revenue structure through advanced cost innovation and strengthened business competitiveness."