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Yesterday, we published the first part of my article on LG Display's strategic challenges in moving from LCD to OLED.  (LGD’s Dilemma – LCD Panels Unprofitable & Getting Worse, But OLEDs Can’t Carry the Revenue Burden (Part 1)) Today, in Part 2, I'm digging down into some more of the financial background. 

On 27 July, LG Display reported 2Q FY12/22 sales of ₩5.607 trillion ($4.27 billion) (down 20% Y/Y and down 13% sequentially), an operating loss of ₩488 billion ( $317 million) (swinging to a loss on a Y/Y and sequential basis), and a net loss of ₩382 billion ($291 million) (swinging to a loss on a Y/Y and sequential basis). The gross profit margin (GPM) was 4.9% (12.6% in 1Q), while operating profit margin (OPM) was -8.7% (0.6%), and the net profit margin (NPM) was -6.8% (0.8%). The EBITDA margin was 11.8% (18.7%).

Table 1: Summary of LGS’s Q222 Results (₩ billions) Source:Company Data

 In Q222, shipments in terms of surface area reached 7.8 million m² (down 12% Y/Y, down 4% sequentially), well below the company estimate, issued when it announced 1Q results, for a sequential decline in the lower end or middle of the 10%–20% range. Weakness was largely attributable to the effects from the lockdowns in China, final demand proving weaker than previously expected, and brand-name companies adjusting their orders. Blended ASP was $566/m² (down 14% from $660/m² in Q122), which was below the estimate for a sequential drop of about 10% issued by the company when it reported 1Q results. The decline in the ASP was due to mix deterioration (a decline for mobile) and lower panel prices for LCDs. Production capacity in 2Q totalled 10.9 million m² (versus 11.5 million m² in Q122), mainly due to capacity in LCD production and maintenance operations.

In 2Q, 31% of panel sales were for TVs (versus 26% in 1Q), 45% were for IT devices such as monitors, laptops, and tablets (versus 48%), and 24% were for mobile devices and others (versus 26%). In value terms, TV panel sales were down 34% Y/Y and up 3% sequentially. IT device panel sales were down 7% Y/Y and down 19% sequentially, and sales of panels for mobile devices and other applications were down 16% Y/Y and down 20% sequentially. At the end of 2Q, days in inventory (the average between the beginning and end of the quarter on a CoGS basis) surged to 76.6 days, up from 61.2 days at the end of 1Q. In value terms, inventory rose 73% Y/Y and rose 12% sequentially. The increase in inventories was due to supply chain disruptions brought on by the lockdowns in China and an increased proportion of value-added products such as OLED.

Key takeaways from the company’s Q322 guidance include:

Table 2: OLED TV Shipment Forecast by Brand - Source: Mizuho Securities Equity Research

LGD Capex Plans - Click for higher resolution - Source: Mizuho Securities Equity Research

The next two charts show LGD's dilemma in terms of product mix and ASP. Over the last two years LGD’s average mix has shifted with IT and Mobile up 5% each, TVs down 10%, while the ASPs have dropped by $40 per m².  The change in ASP is an anomaly, since the $/m² is typically the inverse of the size of the panel. As a result, LGD’s average revenue over the last three years is down by $1.2 billion /month.

Table 4: LGD Shipment Share by App, Source: Mizuho Securities Equity Research, OLED-A

  Figure 2: LGD Area Shipments by m² and ASP – 2011-2022 - Source: Mizuho Securities Equity Research

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Barry Young is CEO of the OLED Association