SEOUL (Reuters) - LG Display Co Ltd said it would begin making plastic organic light-emitting diode panels at a new line in South Korea in the third quarter, driving up its shares as investors cheered the clearer timeline for mass production of the small screens.
This is a big step forward for LG that - despite being the world’s top LCD maker for televisions and the leader in large OLED TV screens - continues to struggle to get a toehold in the market for OLED smartphone screens, where a unit of Samsung Electronics holds a 98 percent share.
LG expects to begin producing plastic OLED panels at a line in Paju, which lies to the north of Seoul, in the third quarter of 2018, it said on an earnings call on Tuesday, helping offset disappointment over the company’s dismal quarterly performance.
Operating profit for the Apple Inc supplier in the fourth quarter of 2017 slumped 95 percent to its lowest in about two years, amid falling liquid crystal display panel prices, high OLED investment and an unfavorable exchange rate.
LG shares fell as much as 2 percent, but later rose 6.2 percent to a four-month high after comments on the timeline for plastic OLED, which according to analysts, indicated that LG could supply Apple with smartphone OLED screens this year.
The South Korean firm did not provide any OLED panels for Apple’s iPhone X in 2017 and said in December that nothing had been decided about future supply for the smartphone.
“The fact that the third quarter was mentioned clearly sent a signal that it could supply its key North American client with plastic OLED screens by then,” said Kim Hyun-soo, analyst at Hana Investment Corp.
“Its 2018 capex is also much larger than market expected, which suggests LG Display has gotten a handle on its OLED turnaround and more sure of itself,” Kim added.
LG forecast a 2018 capital expenditure of about 9 trillion won ($8.41 billion). It expects 2019 capex to be smaller and decrease significantly starting 2020.
The company had previously said it would invest 20 trillion won by 2020 to shift its business to OLED, which it sees as the future.
“This is a very important period where we are in the process of transferring various aspects such as capex and customer profile in order to switch our business,” CFO Don Kim said.
LG’s operating profit for the quarter ended last month was 44 billion won, the lowest since April-June 2016.
It fell significantly short of an average estimate of 250 billion won from 12 analysts polled by Thomson Reuters I/B/E/S.
Results were hit as LCD TV panel prices fell 20-40 percent last year after previous price hikes curbed demand for large-size TVs, said WitsView, part of research provider TrendForce.
LG expects panel shipments during the current quarter to fall by a high-single digit percentage due to lower seasonal demand, but added that panel prices will likely stabilize at the end of the period.
“Although short-term earnings might be impacted by LCD panel prices, the share price will be driven by the firm’s progress in the OLED business,” said Park Sung-soon, analyst at Baro Investment & Securities.
($1 = 1,070.3000 won)
Reporting by Joyce Lee; Editing by Richard Pullin and Himani Sarkar