UPDATE 2-LG Elec to halt some plasma output; eyes reform

Fri May 18, 2007 3:13am EDT

(Adds analyst comments, updates shares)

By Rhee So-eui and Marie-France Han

SEOUL, May 18 (Reuters) - LG Electronics Inc. (066570.KS) said it is to halt production at the smallest of its three plasma panel lines before the end of next month, a move analysts see as a step towards a broader restructuring of the loss-making unit.

The world's No. 2 maker of plasma panels said in a statement on Friday it was considering several strategic options to "efficiently adjust the plasma display business."

It did not elaborate, but said details of the new strategy could come within several months.

Dismal plasma display panel (PDP) screen results wiped out booming mobile phone earnings at LG, which posted a January-March net loss of 122.6 billion won. Its display division, which makes plasma panels, flat-screen TVs and monitors, posted an operating loss margin of 16 percent.

"LG needs to show some improvement in the PDP performance if they want to go ahead with options such as forming a joint venture or an alliance with other makers," said Greg Roh, an analyst at Korea Investment & Securities.

"By stopping the smallest line and focusing on 50-inch plasma panels, LG should be able to cut losses."

Roh expected operating losses from LG's display division to narrow to around 40 billion won in the third quarter from an estimated 100 billion won in the current second quarter, following the partial production halt.

LG trails Japan's Matsushita Electric Industrial Co. (6752.T) and is ahead of Samsung SDI Co. (006400.KS) in the plasma business.

Shares of LG Electronics closed up 1.32 percent at 69,000 won, against the wider market's .KS11 0.2 percent dip. Samsung SDI rose 0.54 percent to 55,900 won.

LG said the move would cut its plasma production capacity by 16 percent and could save 20-30 billion won ($22-33 million) in costs.

The production line has a monthly capacity of 70,000 units of 42-inch plasma display panels (PDPs). The two other larger lines have 120,000 and 240,000 units of monthly capacity.

An LG spokeswoman declined to provide further details.

LOSING MARKET TO LCD

Plasma screens, which once dominated the 40-inch-and-larger TV market with cheaper price tags and technical advantages, have been pummelled in a price war with liquid crystal display (LCD) screens backed by larger production lines and economies of scale.

Some analysts fear plasma makers are now on the verge of becoming niche market players.

In March, while denying rumours it was pulling out of the plasma market, Dutch electronics giant Philips (PHG.AS) said that over time LCD would "become the dominant flat panel TV technology".

LG's CEO said last month the company may have to withdraw from some areas, although he played down talk about a possible sell-off or shutdown of the plasma display operation.

LG's move stands in contrast to Samsung SDI, which on Monday told Reuters it was hoping to turn to a profit in the fourth quarter, helped by growing demand. Samsung SDI expected the average retail price of plasma TVs to fall 20-30 percent this year, although slower than last year's 35 percent drop.

Analysts say plasma makers have no clear strategy but to wait for the industry standard to move to the 50-inch-and-bigger category, where PDPs are expected to remain cheaper than LCDs for the next 2-3 years.

($1=927.9 Won)

((Editing by Keiron Henderson & Ian Geoghegan; Reuters Messaging: soeui.rhee.reuters.com@reuters.net; soeui.rhee@reuters.com +822 3704 5650)) Keywords: LGELECTRONICS PDP/

(C) Reuters 2007. All rights reserved. Republication or redistribution ofReuters content, including by caching, framing or similar means, is expresslyprohibited without the prior written consent of Reuters. Reuters and the Reuterssphere logo are registered trademarks and trademarks of the Reuters group ofcompanies around the world.nSEO349972