Shares in LG Display who make the new Scarlet LCD TV fell more than 8 percent after Lehman Brothers downgraded the Company, their biggest fear is slow sales, oversupply and slowing profits of the LG operation.Lehman cut its ratings on the Asian display industry to neutral from positive in a note dated last week saying profitability had likely peaked in the first quarter, with margins seen weakening in the subsequent two quarters.
Lehman cut its recommendation on LG Display, the world’s No. 2 maker of liquid crystal display (LCD) panels, and Taiwanese rivals AU Optronics and Chi Mei Optoelectronics to equal-weight from overweight.
LG Display stock fell 8.3 percent , against a 0.2 percent rise in the wider market . It was the second-most actively traded stock on the market.
LG Display’s shares fell more than rivals in the sector as the downgrade, combined with worries about a stock overhang, raised doubts about the company’s ability to weather an expected market oversupply in 2009.
Some investors were also taken aback by news that the company planned to spend less on new technology and equipment. As oversupplies in 2009 loom, it is essential that display makers keep investing in technology to make more profitable screens. According to the Wall Street Journal, next year the LCD industry will most likely face an oversupply, with flat-screen makers expanding capacity again to meet fast-growing demand, analysts said.
“This investment will likely worsen overall industry oversupply in 2009,” said James Kim, an analyst at Lehman Brothers. “The LCD industry will experience oversupply from October this year.”
LG Display said that their new sixth-generation line, using glass substrates measuring 1,500 millimeters (60 inches) by 1,850 millimeters, will have monthly output capacity of 60,000 units and mainly produce panels for monitors and notebook screens.
Chief Executive Kwon Young-Soo said at an analysts’ briefing that LG is reducing television-panel output by switching some of its LCD lines to produce information-technology panels, because some of its TV-panel clients are experiencing weakening demand. LG Display’s major TV-panel customers include LG Electronics Inc., Philips Electronics NV, Vizio Inc. and Toshiba Corp.
The executive expressed confidence that by strengthening its technology-panel business the company would withstand potential oversupply in 2009, citing that as a reason for adding the sixth-generation line.
Some analysts disagree.
“LG Display is not the only one that is shifting LCD lines from TV panels to IT panels. Its rivals in Taiwan are also doing the same, raising concerns that the entire industry is heading toward oversupply,” Mr. Kim said.