LG Shutters Plasma Plant Due to Eroding Margins21 May, 2007 By: Erik Gruenwedel
Citing ongoing price erosions in plasma television displays, LG Electronics has announced plans to scale back production, including reportedly closing its oldest manufacturing plant in Seoul, South Korea.
During first quarter 2007 results last month, LG posted a $2.79 million operating loss in digital display business despite a 1.5% increase in overall plasma and flat panel TV sales to $2.93 billion.
Increased market penetration of high-definition TVs has resulted in a glut of both plasma and liquid crystal display (LCD) units that observers say has eroded already razor-thin margins.
Since the fourth quarter 2006, industry profit margins for an average-priced 32-inch flat panel TV have eroded from 6% for a $335 unit to 1% ($305) in the first quarter of 2007, according to technology research firm iSupply Corp.
In March, iSupply found that the average price for a 32-inch display dropped to $302 and dipped below $300 thereafter, resulting in losses for many suppliers and forcing them to cut production volumes or shift manufacturing to more profitable larger panel displays.
“LG boosted capacity too quickly trying to get the upper hand, rather than match its pace with industry growth,” Lee Seung Jun of C.J. Asset Management Co. reportedly told Bloomberg News.
Analysts at this week's Society of Information Display conference in Long Beach, Calif., expect much of the scuttlebutt to center on the challenges of making a profit in the display TV business.
“Although demand for LCDs has remained [strong], average selling prices until the start of the second quarter were continuing to decline and profit margins were shrinking as well,” said Sweta Dash, director for LCD and projection research at iSuppli.
Dash said large-size flat panel LCD manufacturers, similar to oil companies, have reigned in supply in order to increase prices and margins in the second quarter.
The market for larger LCD units is expected to increase at an annual compound growth rate of 12% to $96.2 billion by 2011, up from $53.5 billion in 2006.