LG aims for 2008 display profit

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"Plasma is a technology with still a lot of room for improvement," Simon Kang told Reuters during an interview at the Consumer Electronics Show in Las Vegas.

LAS VEGAS (Reuters) - LG Electronics' <066570.KS> plasma business is improving steadily and the display division hopes to post a single-digit operating profit margin by the end of the year, the head of its display business said on Sunday.

"Plasma is a technology with still a lot of room for improvement," Simon Kang told Reuters during an interview at the Consumer Electronics Show in Las Vegas.

Kang is responsible for LG's plasma business, which makes screens for LG's televisions and for external customers.

As of the third quarter of 2007, it was the world's third-ranked maker of plasma panels after Japan's Matsushita Electric Industrial Co <6752.T> and home rival Samsung SDI <006400.KS>, according to research firm DisplaySearch.

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Kang confirmed that LG's display unit, which in the previous quarters had posted huge losses due to plasma price falls, had already reached the break-even point on an earnings before tax, depreciation and amortization (EBITDA) level.

LG would most likely post only a low single-digit operating loss margin for the fourth quarter of 2007, he said.

LG Electronics shares rose 1.44 percent to 105,500 won, outperforming a 1.76 percent fall in the wider market <.KS11>, after it delivered upbeat forecasts for 2008 earlier in the day, including higher targets for flat-television sales.

Although still in the red, LG's plasma screen business is expected to continue its recovery, especially on the back of exploding demand for 32-inch flat TVs, a format extremely popular in China.

Kang said 80 to 90 percent of worldwide demand for the company's 32-inch plasma TVs came from China.

"But beyond that, we see a lot of potential in markets such as Latin America and Southeast Asia," Kang said, adding that consumers in these countries would soon replace their bulky cathode-ray TV sets with flat panels.

Kang was equally upbeat on the subject of average price falls, predicting an average price drop of about 5 percent in the fourth quarter for plasma TVs, much smaller than the steep falls seen in the first half of 2007.

For all of 2007, Kang predicted plasma TV price drops of around 35 percent. The decline will be more moderate in 2008 at 20-25 percent, he said.

LG's plasma panel production is also on a strong upswing, Kang said, predicting total output of 6.5 million panels in 2008, from 3.5 million in 2007.

The company was not planning any additional investment to fund the increased production, he said.

Plasmas were a sore point in LG's bottom line last year, with the unit posting a whopping 24 percent loss margin in the second quarter of 2007.

The division showed signs of improvement in the third quarter, with an 11.5 percent operating loss margin.

Much of plasma's revival is to be credited to the industry's biggest rivals, LCD makers, who in 2007 drastically reduced their capacity investments and caused a flat-panel shortage that is likely to last well into 2008.

In the absence of the coveted LCD panels, TV manufacturers turned to plasma makers.

Thanks in part to a turnaround in its handset division and its LCD joint venture, LG is expected to post a net profit of 985 billion won ($1.05 billion) for 2007, from the 212 billion net profit in 2006, according to Reuters Estimates.

Things should get even better in 2008, with the company expected to post a 1.59 trillion won net profit, thanks to continued strength in LCDs.

Despite LG's upbeat 2008 forecasts, analysts still estimate that plasma is on the way out. While global LCD TV sales jumped 48 percent in the third quarter 2007, plasma TV sales fell 19 percent, hit by sharp price falls, according to DisplaySearch.

Asked whether LG would consider new strategies, including alliances with other manufacturers, in the wake of market leader Matsushita's decision to take control of an LCD joint venture, Kang said his unit's priority was to complete its turnaround.

($1=941.5 Won)

(Reporting by Marie-France Han; Editing by Sei Chong)