LG.Philips hits record, 2008 outlook bright

SEOUL (Reuters) - Flat screen maker LG.Philips LCD Co Ltd (034220.KS) reported its highest ever quarterly profit on Monday and predicted even better profits for 2008, but voiced concerns over a potential return to oversupply in early 2009.

Makers of liquid crystal display (LCD) panels are set to enjoy a booming flat-screen TV market in 2008 from continuing solid demand and tight supplies, after a strong earnings recovery last year, which was mainly due to investment cutbacks.

LG.Philips, which competes with leader Samsung Electronics Co Ltd (005930.KS) and Taiwan's AU Optronics Corp (2409.TW), forecast a shortage in television panels in 2008 and continued tight supplies for computer screens on high demand.

But Chief Executive Officer Kwon Young-soo said an oversupply was likely in early 2009. "It will come after the Beijing Olympics and (this year's) Christmas shopping season."

Analysts were also cautious about next year, when new, high-capacity production lines will affect the market and likely trigger an oversupply situation.

"Favourable conditions for the LCD market will peak in the third quarter in 2008, backed by strong demand, particularly in TVs," said Park Hyun, an analyst at Prudential Investment & Securities.

"But the market will start to feel the increasing inventories from the fourth quarter. Recent capacity expansion in the next-generation production lines may cause a supply glut in 2009."

LG.Philips (LPL.N), the world's No. 2 maker of large-sized LCDs, reported a 760 billion won ($811.2 million) October-December net profit, soundly beating a forecast for 665.6 billion won from analysts surveyed by Reuters.

The results topped the company's previous record of 701 billion won posted in the second quarter of 2004 and marks a strong turnaround from the 174.3 billion won year-ago loss, when prices sagged on weak computer and TV sales.

Quarterly sales on a consolidated basis rose 41 percent to 4.3 trillion won.

For more earnings details, see the company's Web site at: here%2007%20Earnings%20Deck_ENG_Distribution_Final.pdf

BRIGHT 2008, CLOUDY 2009

"Demand for large-sized TV screens is growing," CEO Kwon said in an investor meeting. "We can still see an overall TV panel shortage this year, although it will be milder than last year."

China is seen leading global flat-screen TV market growth, as consumers with increased buying power replace old, bulky tubes to view this summer's Beijing Olympic Games.

LG.Philips is expected to boost its net profit this year to 2.19 trillion won from 1.34 trillion in 2007, according to Reuters Estimates.

The company forecast average selling price of its LCD panels would fall by only a mid-single digit percentage this quarter.

But stormclouds may be gathering for 2009 as players are racing to build next-generation plants in order to churn out more panels for bigger TVs. Samsung Electronics, LG.Philips, Taiwan's AU and Japan's Sharp (6753.T) have been expanding capacity or planning to do so within this year.

"Inventory levels are to increase in the fourth quarter, and by 2009, the market will feel a sense of a supply glut," said An Sung-ho, an analyst at Hannuri Securities. "It's hard to tell whether demand will live up to the sufficient supply then."

Shares in LG.Philips, valued at about $17 billion, fell 0.78 percent to end at 44,400 won before the earnings announcement. The stock rose 13 percent in October-December, outperforming a 2.5 percent fall on the wider share market .

($1=936.8 Won)

(Additional reporting by Kim Yeon-hee and Kim Soyoung; Editing by Keiron Henderson)