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LG Display to Tighten Purse Strings
Hit by China

By Cho Jin-young
LG Display to Tighten Purse Strings
  • By Cho Jin-young
  • June 22, 2018, 09:58
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LG Display’s large-screen OLED production plan in in Guangzhou, Chinais going awry due to the hindrance by the Chinese government.
LG Display’s large-screen OLED production plan in Guangzhou, China, is going awry due to the hindrance by the Chinese government.

LG Display is planning on large-scale manpower restructuring and labor cost reduction in the second half of this year in its facilities located in Paju and Gumi. This is because of its business performance deterioration attributable to an LCD supply glut from China.

LG Display’s operating losses are estimated to reach one trillion won (US$900 million) this year. The company is trying to build an 8.5-generation OLED manufacturing plant in Guangzhou, China, and already obtained an approval from the South Korean government to that end, but the Chinese government has hindered the construction for months.

The LCD supply glut from China is distorting the market as Chinese LCD manufacturers are continuing to increase their supply regardless of losses. This is possible because of subsidies from the Chinese government. BOE, which surpassed LG Display in terms of shipments last year, currently has the highest share in the market. BOE has received subsidies worth a total of 1.4 trillion won (US$1.26 billion) or so and has posted positive operating profits all the way since 2011 based on the subsidies. In addition, BOE recently built a 10-gen LCD manufacturing plant at a cost of 7.8 trillion won (US$7 billion), bearing only 500 billion won (US$450 million) and covering the rest with government loans. On the contrary, LG Display is preparing almost 100% of its money for new investment without any external support.

LG Display has focused on OLED as a future growth driver in that the LCD market is already a red ocean. The company is planning to increase its OLED sales-to-total sales ratio from 10% to 40% between last year and 2020. However, its efforts for the shift in focus are showing little progress and its LCD business is wobbling to make matters worse.

LG Display’s large-screen OLED production plan is going awry due to the hindrance by the Chinese government. In some cases, the plan may be cancelled. Then, the company cannot respond to the global OLED TV demand, which is showing a rapid increase nowadays. Its 10.5-gen OLED manufacturing plant in Paju, South Korea is not operational until 2021.

Another risk factor is mounting uncertainties in the non-large-screen OLED market that have been triggered by the sluggish sales of the iPhone X. Still, LG Display, which is going to invest 20 trillion won (US$18 billion) in OLED, currently has approximately 33,000 employees in South Korea. For reference, the number of Samsung Display employees in South Korea is about 23,000.

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