PREVIEW-LCD makers set for improved Q2, recovery gathers steam

* What: Q2 earnings for leading LCD panel makers

* When: From Thursday, July 16

* Samsung's LCD unit, LG Display to return to profits

* AU, Chi Mei set to narrow losses

* Shares outperform on healthy TV sales, screen price gains

By Rhee So-eui

SEOUL, July 13 (Reuters) - Recovery momentum will be key
for quarterly earnings of leading LCD maker as the sector
bounces back from one of its worst downturns, helped by robust
demand for flat-screen TVs and shortages of key inputs.

The liquid crystal display (LCD) sector is restarting
production lines and securing raw materials after sharp output
cuts in late 2008 resulted in a shortage of panels this year.

Markets are pricing in a recovery for the sector, one of
the few bright spots in the weak global technology industry,
and many analysts have upgraded earnings forecasts and price
targets.

South Korea's Samsung Electronics (005930.KS) and LG
Display (034220.KS), the top two LCD makers, are set to return
to profit in April-June from losses in the previous two
quarters, when the global recession battered demand for
electronics.

Taiwanese rivals AU Optronics (2409.TW) and Chi Mei
Optoelectronics (3009.TW) are likely to report significantly
smaller losses than prior quarters, analysts said.

"Demand to replace bulky CRT TV with LCD model is
propelling the market. It's comparable to the shift from
black-and-white tube to colour TV," said Park Sang-hyun, an
analyst at HI Investment & Securities.

"There will be a slowdown in the fourth quarter in
accordance with the usual seasonal pattern, but price declines
are likely to be limited due to a glass shortage."

Demand for LCD televisions has got a boost from resilient
North American markets and China's massive state subsidy,
helping the sector rebound faster than expected.

Panel prices are set to rise further in the third quarter
after increasing about 5 percent on average in the second
quarter from the previous quarter, according to analysts
estimates.

Thanks to booming sales at Samsung's own TV division, its
LCD business likely swung to an operating profit margin of
about 5 percent in the second quarter from an operating loss of
8 percent in the first quarter, analysts said.

LG Display said last week its notebook PC panel sales rose
20 percent in June from a year ago, suggesting strong results.
It also said it was not able to cope with surging demand for TV
panels even with plants running at full capacity.
[ID:nSEO43772]

RISKS OF INCREASED OUTPUT

The rebound in LCD prices can be largely attributed to a
shortage of glass substrates, as suppliers such as Corning Inc
(GLW.N) and Asahi Glass (5201.T) have been slow to raise
output, keeping a lid on capacity growth especially in Taiwan.

But the outlook is not all bright for the latter part of
the year due to rapid growth of output and a fragile global
economy. Some analysts warned prices and sales may plummet in
the fourth quarter when demand usually weakens.

"Since the business will slow down in the fourth quarter,
companies want to squeeze as much profits as they can before
the cycle turns weak," said Jason Kang, an analyst at NH
Investment & Securities.

Last month, research firm DisplaySearch raised its forecast
for 2009 LCD TV sales, predicting a 21 percent increase in
global LCD TV shipments to 127 million units. [ID:nSEO106017]

Samsung shares have risen 43 percent so far this year and
LG Display jumped 62 percent versus a 27 percent gain in the
KOSPI . AU jumped 46 percent and Chi Mei surged 73
percent in a Taiwan market up 47 percent.

The cost of protecting debt of LCD makers from defaults has
dropped. For example, five-year credit default swap spreads on
LG Display tightened to 467 basis points at the end of last
week from 593 points at the start of the year, according to
data provider Markit.
Company Estimated Q2 Year ago Qtr ago Date

profit/(loss) profit profit/(loss)
LG Display 161 bln won 759 bln won (255 bln won) July
16
AU Optronics (9.9 bln T$) 20.4 bln T$ (20.2 bln T$) July
23
Chi Mei (14.5 bln T$) 13.8 bln T$ (19.6 bln T$) July
30
($1=1277.7 Won) ($1=33.04 Taiwan Dollar)
(Editing by Anshuman Daga)