Flat-screen maker LG Display will spend $1.3 billion to raise output and help meet robust customer demand and is betting on booming premium LCD TV sales to drive strong growth this year.
The LCD industry has enjoyed brisk demand for flat-screen TVs, helped by the recent Lunar New Year holidays in Asia and sports events such as the upcoming soccer World Cup, but concerns have grown recently that the sector might return to oversupply as makers aggressively ramp up output.
We are not concerned about oversupply in H2 and the market will be okay, because despite increasing capacity, panel makers are struggling to meet demand for high-end products such as LED-backlit LCD and large-sized screens, LG Display CEO Kwon Young-soo said after its annual shareholders meeting held at its manufacturing complex in Paju, north of Seoul.
The world's No.2 maker of liquid crystal displays said the new 1.5 trillion won ($1.3 billion) line, which will begin operation from the first half of next year, will mainly produce large-sized panels for TV screens.
It is on top of another new production line which is set to begin operation in the first half of this year, and a proposed $4 billion LCD plant in China that is awaiting approval.
Combined, the three new facilities would boost monthly capacity by about 30 percent by 2012.
For now demand is strong but LG's aggressive spending plan could prompt rivals to jump in and increase investments and that will create oversupply next year as the demand outlook is uncertain, said Im Sung-bum, a Hanwha Securities analyst.
UPBEAT ON CHINA PLANT
Shares in LG Display rose 2.3 percent to 36,000 won, beating a 0.4 percent gain in the broader market <.KS11>. The stock has gained about 40 percent in the past year.
Global sales of displays used in LCD TVs will likely surge 40 percent to $49 billion this year amid a shift in demand to larger and more advanced panels, according to research firm iSuppli. LG controls about a quarter of that market, according to another research firm, DisplaySearch.
Demand is strong and we are meeting only 80 percent of our customer demand...so we are seriously considering adding new capacity, said Kwon, a finance veteran and former CFO at top shareholder LG Electronics <066570.KS>.
Despite weak seasonal demand, panel prices are unlikely to fall (in the second quarter) and prices of some products including TV and IT may actually rise due to supply shortages, Kwon said.
He expects China to approve two foreign firms this month to build cutting-edge LCD plants in the country, where LCD makers are pumping billions of dollars to build factories betting on China overtaking the United States and Europe as the world's biggest LCD TV consumer in 2011.
LG is competing against domestic rival Samsung Electronics <005930.KS>, Taiwan's No.2 LCD maker Chi Mei <3009.TW> and Japan's Sharp Corp <6753.T> to expand in China.
Shareholders, who were offered plant tours and a lunch after the meeting, applauded enthusiastically to endorse the plans. (Editing by Jonathan Hopfner and Lincoln Feast)