LG Display Co Ltd (LPL) 2005 Q1 法說會逐字稿

Welcome to the LG Philips LCD first quarter 2005 conference call. My name is Jay Hong, Head of Investor Relations.

On behalf of LG Philips LCD it is my pleasure to welcome you to our global quarterly thirtieth conference call.

I'm jointed by our President and Chief Financial Officer, Ron Wirahadiraksa, as well as Executive Vice President for Worldwide Sales, Duke Koo and Executive Vice President for Marketing, Bruce Berkoff and other members of senior management.

We're allowing approximately 1 hour in total for the call. We will spend the first part of the presentation on our prepared remarks that correspond to the slides which you can find on our website www.lgphilips-lc.com. Following this, we will take questions.

Before moving to the discussion of the quarter you should be aware that this conference call contains forward-looking statements within the meaning of the US Private Securities Litigation Reform Act and Securities Regulations in Korea including statements regarding LG Philips LCD's expected future financial performance.

You are hereby cautioned that these statements may be affected by the important factors among others set forth in LG Philips LCD's filings with the US Securities Exchange Commission and in its first quarter 2005 earnings release.

Consequently, actual operations and results may differ materially from the results discussed or projected in these forward-looking statements.

LG Philips LCD undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. Now please take a minute to read the disclaimer.

I would now like to turn the call over to our CFO, Mr. Ron Wirahadiraksa.

Thank you Jay. Ladies and gentlemen welcome to our Q1 '05 global conference call. During the next hour I will review our first quarter earnings results, discuss our performance highlights and conclude with our outlook. Following the presentation, we will have a Q&A session. We advise you to contact us at any time after this call if you have further questions.

We're reporting today in consolidated Korean GAAP with an Appendix to this presentation that includes our US GAAP numbers, as has been our practice.

Please turn to slide 4. Before we review the financial performance in detail I want to offer some general observations and perspective on our results in the quarter, highlighting both our successes and our challenges in today's operating environment.

By all measures the LCD industry continues to be 1 of the fastest growing technology segments globally. Demand is growing across all 3 product lines - Monitors, TVs and Notebooks - fuelled by declining retail prices and the consumers' recognition of the benefits inherent in these products.

We, along with others who watch and monitor our industry, expect the growth trend to continue throughout 2005 and beyond as we will articulate today. We believe LPL is best positioned to take advantage of this market opportunity.

In Q1 '05 LPL experienced encouraging sequential growth despite the pricing environment and a strong Korean Won. Overall, prices continued to decline in Q1 '05, but at a slower rate than in Q4 '04.

It is worth noting that the first quarter is a traditionally seasonally weak period in which we accomplished growth by focusing on product quality, innovation and production leadership. With a high end product strategy and our strong customer relationships we were able to regain our leading position in the Monitor and TV segments for Q1 '05 based on this base such as market share estimates.

Driving much of our growth in the first quarter was performance and contributions of our latest fab P6. The successful ramp up of P6 played a significant role in increasing our production and delivery of larger products for Monitors and TVs this quarter.

In this environment, effective cost control is critical in delivering on our plan. While we made progress in this area during the first quarter, we believe there is room to take costs down more as we fully ramp up P6 and incorporate greater efficiencies in the processes.

We continue to lead the industry with our vision of larger and wider screens, and have timed our investments in P6 and P7 to take advantage of these trends. We see that larger and wider average screen size to LCD monitors and TVs are indeed emerging. We have been ramping up our production of significantly larger size products to support the growth of these markets and we see the coming need for more full HDTV flat display as another important trend.

Please turn to slide 5. The factors that impacted Q1 '05 are ongoing price declines fuels demand for our products, which resulted in increasing product shipments in a traditionally weak quarter where we were also impacted by strong Korean Won.

Q1 '05 revenues increased to KRW2.1t, up 7% sequentially from Q4 '04. The increase in revenues resulted from a combination of price declines and demand growth, which led to an increase in net display area shipped, up 24% q-on-q.

This increase in net display area shipped was due to the ramp of P6, which enabled the shipments of more 32 and 37 inch wide panels, growing the market for LCD TVs.

Overall, prices in US dollars per square meter of net display area shipped were approximately 9% lower at the end of Q1 '05 compared to the end of Q4 '04.

ASP decline in Korean Won per square meter was 14%, reflecting the appreciation of the Korean Won.

Our total cost of goods sold increased 14% q-on-q to KRW2.1t, reflecting the area shipment growth. We continue to see progress in our cost down efforts. Our cost of goods sold per square meter of net display area shipped was US$2,144 for the first quarter, down 2% q-on-q. Our cash cost of goods sold per square meter from net display area shipped decreased 1% q-on-q.

Cost reductions in Q1 '05 were affected by the introduction of many new products, especially on larger size TV panels with a higher material cost.

While we made progress in cut down initiatives, we are committed to driving towards lower cost of production and higher manufacturing efficiencies over the rest of 2005.

Due to the factors mentioned, our EBITDA margin was 13% for the quarter.

Please turn to slide 6. As of March 31, 2005, we had KRW1.4t in cash and cash equivalents, which was approximately the same as at the end of Q4 '04.

Our net debt to equity ratio was 30% at the end of Q1 '05, up 23% at the end of 2004.

Our first quarter finished good inventory turnover levels in 3 weeks, which is about the same as Q4 '04.

As part of our ongoing funding operations, we issued, amongst others, 400b of Korean Won denominated fixed rate bonds. The funds raised are being used for capital investments.

Please turn to slide 7. Despite the contraction in net income, our cash flow from operations continued to be positive, reflecting our efforts to effectively manage our working capital.

Capital expenditures of KRW453b were primarily used for P7.

Please turn to slide 8. I would now like to go into more detail about several specific performance metrics, including panel ships and ASPs per square meter of net display area shipped, product mix, Q1 capacity and cash ROIC.

Please turn to slide 9. As we strive to be the leading manufacturer of large and wide LCD panels we have invested in advanced fabs such as P6 while focusing on intimate customer relationships. Thus, we have strategically ramped up P6 to meet the increasing demand for large and wide panels in both Monitors and TVs.

In Q1 '05 we shipped 958,000 square meters of net display area, an increase of 24% q-on-q. From the end of the fourth quarter to the end of the first quarter our ASP per square meter of net display area shipped declined 9%.

Total quarterly average selling price per square meter of net display area shipped, as we show here, was US$2,085, which is a decline of 10% q-on-q. This reduced rate of price decline was a result of the overall market conditions of ample capacity, counteracted in part by growing volumes from lower end user set prices.

Even with these price declines, our overall price per square meter is 1 of the highest in the industry. A key differentiating factor is that we have a large portion of our sales in high end product categories due to our broad product mix, high quality customer portfolio and strong customer relationships.

Please turn to slide 10. In Q1 '05 our TV mix was 22% of our total revenue compared to 15% in Q4 '04.

The TV segment is of growing importance to us. Strategically, we have aligned our capabilities in market leadership of large panels, technology and production leadership. We are ramping up P6 and have plans for P7 to begin mass production in the first half of 2006 to meet the emerging LCD TV market that we are driving.

P7 in particular will provide more large and wide full HDTV panels, which means 1920 by 1080 resolution as this market begins to lift off.

Before I move onto capacity I would like to highlight [Display] Research's recent Q1 '05 large area shipment report which estimates that we were ranked number 1 in LCD monitors and LCD TVs in Q1 '05, recognizing our role as an industry leader.

Please turn to slide 11. Looking at capacity, LG Philips LCD has a consistently strong track record of ramping up new fabs and expanding existing ones to meet the growing sales of our global customer base.

In addition, because we have a wide variety of fabs and products, we are able to efficiently optimize across our product and fab portfolios. These requirements are being met by the world's largest Gen 6 factory, P6, which averages 55,000 input sheets per month for the first quarter and it's meeting the growing market demand for LCD TVs.

Our finished goods inventory stayed at approximately 3 weeks while we further ramped our input area capacity. P6 remains on track as previously announced goal of 90,000 input sheets per month by the third quarter of this year and will continue to enable us to meet the requirements of our global branded TV customers.

Our next factory under construction P7 is scheduled to begin mass production in the first half of '06 furthering our leadership role in providing large and wide full HDTV panels for the growing LCD TV market.

Please turn to slide 12. As we have previously highlighted, cash return on invested capital divided EBITDA over invested capital is a key metric we focus on to assess our performance relative to our peers. Historically, LPL's cash ROIC has exceeded the performance of other competitors by a significant margin. In Q1 '05 our cash ROIC was 35%, which should be seen in the context of the difficult and dynamic market environment.

I would like to now share our outlook with you. Please turn to slide 14.

According to [Display] Research, the TFT-LCD industry should experience both unit and area growth in 2005. LG Philips LCD plans to increase its output to meet this projected growth. We anticipate double-digit growth in our net display area shipped for Q2 '05 compared to Q1 '05.

As we discussed last quarter, we expect the industry supply/demand balance will begin to stabilize and then show signs of strengthening later in the year, mainly due to the growing demand for LCD TVs.

We anticipate our ASP per square meter of net display area shipped to decline at the single digit rate for Q2 '05 compared to Q1 '05 quarter end to quarter end.

We expect our EBITDA margin for Q2 '05 to be in the mid to high teens.

CapEx for 2005 will be KRW4.6t, of which KRW3.1t is for P7. To maintain our leadership role in the LCD TV segment where we have 7 of the top 10 global brands at our strategic customers we plan to start mass production of P7 in the first half of 2006.

Please turn to slide 15. On March 23, 2005 we held our annual Shareholders' Meeting during which our expanded Board of Directors was ratified 4 months ahead of our plan. Our new Board is comprised of a majority of outside Directors and we have a fully independent Audit Committee.

In addition to this Committee, we have established a Remuneration Committee, an outside Director nomination and Corporate Governance Committee.

We look forward to continuing best practices for international corporate governance and shareholder value creation.

In summary, LCDs continue to be 1 of the fastest growing technology segments. We have seen encouraging sequential growth in Q1 '05 where the first quarter is seasonally weaker 1 in the industry.

LPL maintained its focus on product quality, innovation and production leadership. With our high end product strategy and our strong customer relationships we were able to regain our leading position in the larger and wider monitor TV segments.

Page 16. We have concluded our first quarter earnings presentation. We are now happy to take your questions.

Now the Q&A session will being. [OPERATOR INSTRUCTIONS]. The first question will be given by Mr. Chong Kim calling from CLSA. Please go ahead sir.

Hi, good evening everybody. Thank you Ron for that presentation. I had a couple of questions. 1 on in terms of your cash costs and I think maybe the cash cost structure didn't improve as much as maybe some of us had hoped. When do you foresee -- well what are the variables in the first quarter that kept cash cost improvement muted and when do you anticipate that you'll see that cross over where you've had fantastic revenue growth when your revenue growth gets ahead of your cost structure so that margins can improve? That would be the first question and then I've got a follow up after that please.

Okay. Well actually what we said is 9% ASP decline in terms of square meter in US dollars right and ASP decline in square meters in Korean Won of 14%. The same holds true for the cost down. So actually in US dollars, as we expected, the cost of goods were down 2% q-on-q and cash costs 1%. And the respective Korean Won numbers are 8% and 7% respectively.

We -- the main reason for this is the ramping up of larger and wider panels and of course we are still ramping capacity in P6. So it's mainly because of the mix and we foresee, as I alluded to under our commitment, to bring the costs further down. We foresee that to be more significant in the quarters to come.

I mean I don't mean to pin you to -- make you commit to a specific quarter when you're going to achieve this. But is there a broad window where you feel comfortable that you think you'll finally get the, reap the benefits of having P6 technology?

Yes. Of course what we have said is by Q3 we will ramp input sheet to 90,000 targeted for P6 and that would be the time that P6 will be more significantly contribute to cost improvement.

And then my last question is really just following up on the volume numbers that you've shown in the first quarter are really strong volumes. Could you give just a little bit more detail in terms of how the mechanism of pricing is really coming through in terms of demand? Whether that be corporate or consumer and also what kind of indicators do you have that we can say confidently that this is driven by real demand and not just channel restocking? If you could just answer those questions thank you very much Ron.

Okay. We think the story line for LCD becomes more prominent. We have seen that during the Las Vegas show already where LCD is present with very prominent as people started to recognize the emergence of the HDTV standard.

For the penetration of this year we have earlier set, and we stay by that, 8 to 10% and we feel that it is still a very early buyers' group. So we think that prices in the retail are coming down and you should see that in the perspective of that earlier buyers' group. So we feel that in those terms people start to see more, or let me say start to open their wallets more to buy LCD TVs. Please don't look at the current price levels and compare that to a mass market because the penetration is different 1 and yes that will have to wait for a little longer.

So early buyers. Now starting to see prices coming down. LCD TV really starts to become a more in a product in terms of recognition and differentiation for these other technologies.

So we feel that the strong shipment growth that we've seen in the first quarter is the reflection of real demand that we see oncoming and we see that improving in the second half of this year.

Is that in answer to your question?

It is. I was just looking for maybe a few more data points in terms of a little bit more short-term visibility on things like Monitors as well, or Notebooks.

Oh, okay. Well for Monitors the demand is very strong. You know with all the enthusiasm for LCD TV we should not forget that main capacity expansion in the industry is still consumed mostly by increased Monitor square meters of glass. Not by TVs. Of course TVs it's growth wise the strongest. But in absolute terms it is still the Monitors and we see strong demand. We have seen that and we have seen some shortage in a few products. Most notably 17 inch as you know. We see the average trend of Monitors also increasing with the focus on 19 inch, which consumes about 24% more glass than 17 inch. So we think the trend is much more confirmed.

Of course in TVs it's the consumer demand which has to trigger that and I've given you already a few comments on that. We still feel that $1,499 for a branded 32 inch is a kind of a good sweet spot price point where demand will take off. We said in earlier statements that would be around Christmas of this year across the board. I mean for those vendor products.

Thank you.

The following question is by Mr. Sunil Gupta calling from Morgan Stanley. Please go ahead sir.

Thanks for a very comprehensive presentation Ron. I just want to follow up on an earlier questions about cost reductions, particularly in cash costs. Could you talk about what kind of cost reductions do you hope to achieve in Q2?

The first thing that comes to the mind is the further ramp up of the 6 factory, of course. That is 1. The second is because we're getting better on the experience curve, the learning curve, with the larger and wider products. Also, we foresee that some of our components cost can come down, not only because of the better manufacturing efficiency but also because of real price downs.

We have, as you know, increased the mix in G6 glass by adding more NEG, which is a relatively cheaper supplier than Samsung Corning. We are increasing our color filter ratio overall as a Company because all the Gen 6 line makes 100% of its color filter in house. So ultimately it will go up from 90 to 95% Companywide.

We see in driver ICs ongoing efforts to reduce pricing through negotiation and as you know, we said in earlier calls we're working on this multi-channeling of driver ICs.

In general, we work on simplifying of the components and component reduction and we're also working on platform design.

We are still making, or ramping up more capacity in existing fabs also as we have earlier stated. So I would say those are the main points that would spring to the mind immediately when we think about costs down for the near term.

And what further cost reduction do you think you'll be able to achieve as a result of these measures?

Well we have said you know sustain it across the -- for the whole Company. We are looking at 10 to 15% annually. It's the products like the ones that come from the P6 line like 32 inch and 37 inch. Those percentages will be higher this year. Significantly higher. And for the others, they will more or less be in line with that.

So given that in Q1 cost reduction was somewhat lower than your annualized rate, will it fair for us to assume 6 to 7% reduction in cash costs in Q2 just to come back to the normalized run rate?

Very difficult to pin me down on a specific number. But I think it's not a very unrealistic assumption.

Okay and my second question that I have is on your ASP guidance for Q2. You guided for single digit decline for blended ASP. Could you talk about what you expect the ASP to do for TVs and Monitors plus Notebooks separately?

Well generally speaking if you look at the ASPs for square meter of glass for TVs that will get -- it will get better across the board I think. But for TVs the prices ongoing go down because we have not reached yet the point where the market wants a sweet spot price if they place. So I would say across the board we see erosion and in TV the price erosion specifically is an ongoing factor.

And finally a question on your -- did you say that the Monitor it could go up in Q2 blended ASP?

These for Monitors. We don't think so. Not across the board. There will be products here and there where that will be the case. But across we see still slight erosion in Monitors.

Okay. Thank you very much Ron.

Yes.

The following question will be given by Mr. [Asheth](ph.) Kay from Key Admin. Please go ahead sir.

Hi, thank you. My first question is that the inventory number that you refer to as TV is that on a non-consolidated basis or a consolidated basis?

I'm sorry, we did not give an inventory number for TV. We gave an inventory number for the Company, finished goods inventory. That is 3 weeks I said and it's on a consolidated basis. So that includes everything. Everything that is tailing, everything we have in house for customers. It's all inclusive global inventory.

Okay and my follow up question is what is your gross debt to equity again on a consolidated basis and how does it compare to fourth quarter?

Net debt to equity at the end of the quarter stood at 30%. End of last year it was 23%.

And so again this is consolidated?

Totally consolidated. We basically only talk about consolidated numbers.

Okay. Thank you so much.

Let me clarify that. The reason why you see also in filings standalone, unconsolidated numbers, is because that's the requirement in Korea. But the Company is run fully on a consolidated basis. So that's the numbers that we're discussing.

And you know last conference call where you have sort of suggested and talked about some point in time there will be a fundraising exercise. Any update on that? That's my last question. Thank you.

Yes, as I have said, we were talking about ongoing funding activities. Thinking of straight debt and convertible and not to the forefront of the mind. But we have it in the back of our head is possible equity. So that is the plan that we're executing and you've seen as first step in that, major step in that KRW200b debenture issue in Q1.

Okay. Thank you so much.

Yes.

The following question will be given by Mr. [Gin Song] [indiscernible] calling from Arid Research. Please go ahead sir.

Hello.

Okay. The next question will be given by Mr. Chong Kim calling from CLSA. Please go ahead sir.

Just going back to maybe the question about fundraising and CapEx. In the first quarter you spent 453 and I think for the full year you're looking at a number 10 times that. So in terms of CapEx plans you are still on track and I guess going into the second half how will that be weighted? When do you see your requirements of cash outlay being the greatest? And if I heard you correctly, just your indications about perhaps an equity linked assurance of some sort. Are you telling us that that's within the works or just something that you're considering today? Just a little more clarification please. Thank you.

Let me -- your first question was--

On CapEx.

On CapEx yes. So this quarter it has to do with the ramping of P7 where the main CapEx will be done when the fab equipment goes in. So the weighting of the KRW4.6t of CapEx guidance is more towards the second half. It's about 35/40 to 65/60 first half second half. Okay.

Okay and just some more clarity on your fundraising plans.

I just wanted to make sure you got those numbers.

Thank you.

As I said earlier, straight debt in convertible, certainly is something that we are considering very seriously for our funding and possible straight equity. It's not to the forefront of the mind, but we have it in the back of our heads. There is no decision on that taken yet. But straight debt and convertibles yes, we are considering that.

Okay. Thank you.

The following question will be given by Mr. Ivan Goh calling from Dresdner. Please go ahead sir.

Hi, good evening guys. I've got a couple of questions. Firstly, can you perhaps talk a bit about your revenue mix changing, the evolution of revenue mix going from Q1 to Q2 between TVs, Monitors and Notebooks?

Yes. So as we said in the slide, the TV part is about 22% and the Monitor part, let me look that up. The Monitor part is 56% and the Notebooks part is 18% and Small Business is 4%. So in Q4 the number was in the same order. For TVs 15%, Monitors 53%, Notebooks 27% and Small Business 5%.

I'm sorry, I was referring to what they would look like in the second quarter.

Oh the second quarter. Well it is definitely so that TVs will become more reported in the mix. So as we ramp, 56 more than the ratio of TVs will go up slightly. The ratio of Monitors will go down and Notebooks will go down more significantly and that is because the square meters of glass consumption of TVs will start to approach the total for Monitors already very quickly this year.

And with regards to P6 can you perhaps talk a bit about the split between TVs and Monitor?

Yes. We started last year when we ramped this up with a 32 inch wide IPS LCD TV. So we issued at that time 100% for TVs. More towards the end we produced more Monitors and that was around 45 to 50% for Monitors.

So this quarter it's more or less the same ratio and we expect that ratio between Monitors and TVs to converge throughout the year to the originally intended one-third for TVs and two-thirds for Monitors.

I have 1 question regarding TV panel set prices. In your prepared remarks you said that you expect 32 inch TV prices to fall to $1,499. You think that's the sweet spot.

Yes.

Now basically the whole industry is expecting that 32 inch TV panels, TV falling to $1,499. But my question is what happens after that? I mean is that -- is pricing going to fall further in 2005, in 2006? Is there never any end, even if there is -- even when you reach a sweet spot? Will there be a new sweet spot as we go along?

Yes. I think the latter will apply. So the sweet spot used to be for 32 inch $1,999. Now it's $1,499. Probably the next 1 is $1,299, $1,199 and after that $999 unless we kind of have a magic number. You know 32 inch under $1,000. So it will go in that direction, that is correct.

Okay and I have 1 last question. On page 15, which is your Board of Directors, I see a Mr. Dunn.

Yes.

Can I just check with you if he is related to the [ARM] UK?

Yes he is.

Okay. Thank you very much.

The following question will be given by Mr. [Apti Zed] (ph.) calling from ABN Amro. Please go ahead sir.

Hi, thank you. Just a question on your exposure to foreign currency. Could you help us understand what proportion of your sales in US dollars and if any other currencies at all? And what proportion of costs are in dollars or Japanese yen? Do you actively manage your foreign currency exposure and what kind of hedging policies do you really adopt?

The answer to the latter is yes, we are actively hedging our ForEx exposure. That's why the ForEx impact in the Company has been relatively mitigated in Q1. We have -- we are virtually long in dollars. We have about 90% of our sales revenue is in US dollars and the others are Japanese yen and some euro.

On the purchasing side, is also US dollars. But the minority. It's mostly Japanese yen. It also goes for equipment.

What we do is we hedge 100% of our permitted exposure, about 30% or 25%, 30% of our anticipated exposure. That's on a 12 month rolling basis.

Right. You didn't seem to have booked any ForEx gains in spite of substantial hedges. Any particular reasons? Any accounting reasons behind that? In spite of the fact that the Won has appreciated so much and if you hedged your exposure we should have seen some other income and gains on the ForEx front. You don't seem to have booked much of those. Hello.

Yes you can see that 100% back. Some of it is in other income and expenses and some of it is in operating expenses and income. But there is some impact. We have hedged and we have had a favorable hedging result in Q1.

Thank you.

Yes.

The following question will be given by Mr. John Sung calling from CSFB. Please go ahead sir.

Thanks for holding this conference call. My question goes back to CapEx. Given the CapEx investment you plan, what will be the total depreciation expense you're looking at for this year?

Well there the share will be the total depreciation expense. But if you look at the depreciation expense in the first quarter, it's about KRW415b. Of that KRW415b, KRW137b is for P7. And we're not going to -- sorry, for P6. I was 1 fab ahead. I apologize for that. For P6 and we are not having any fab this year running largely out of depreciation. That will come next year when the first Gen 5 will run out depreciation. So if you take the ramp schedule of the 90,000 input sheets to Q3, you can -- and you relate it to the 55,000 that we have now, you get a fairly good picture of what the depreciation expense this year is going to look like.

Thank you.

The following question will be given by Mr. Sunil Gupta calling from Morgan Stanley. Please go ahead sir.

Hi everyone. I wanted to follow up on your guidance for Q2 where for volumes you said you expect double-digit quarter-on-quarter growth. And I'm trying to relate this to what you said about 3 months ago where for Q1 you were expecting I think 9% volume growth and then you ended up doing 24%. So I'm trying to get some feel for what sort of number do you think we will get in Q2? Are we talking about similar numbers like 25% or so quarter-on-quarter?

I've given the guidance. So we're talking about double-digit growth for Q2.

Right. Can you help us narrow this down in terms of because you know in Q1 your number came significantly higher than what the guidance was?

Yes that is partly because the capacity conversion factor of P6 was slightly more favorable than we anticipated and we also had some efficiency in the other fabs. But we don't expect that to largely increase in Q2. So I would like to stay with the guidance of double-digit growth.

Okay and if I could ask what's the likelihood that your P6 ramp up to 90,000 mother sheets happens earlier than what you're suggesting because you know some time end of Q3 until the end of Q3? Is it possible this could happen by end of Q2?

We have set it will happen in Q3. Of course we will do our best to steer the ship such that we can pull that up. But doing it in Q2 is not very likely.

Okay. Thank you very much.

The following question will be given by Mr. Asheth Kay from Key Admin. Please go ahead sir.

Thank you. So as to get to $1,499 sweet spot price for the retail products what do you think will be the panel rate?

Normally if you look at the average x factor and x factor is from panel to retail, it's about 3, 3x. So $1,499 would imply at 3x $500. So we think the factor would be retail price coming down and recently there is been some change that has recognized the importance of bringing LCD TV price down further. We think it could be 2.5 to 3. So that's about the range.

So on this current price so that I'm getting it correctly, they were just slightly north of $600, is that correct?

Well I think between $500 and $600.

And as you earlier explained answering to 1 of the questions that the sweet spot continues to go down and I think on the regular Monitor side you know more than I do there are a lot of new players getting in. Some may not have the capital discipline that you might have. So the question is that what type of, and I'm not asking about 2Q, 3Q or 4Q. But if you take a step back and if you exclude short-term imbalances in demand and supply, what is the secular decline in blended ASP that you think will take this for the LCD industry?

I think at this moment we don't basically give ASP on a unit basis. So for this moment I would like to stay with the Q2 guidance that we have given of single digit price erosion.

Okay. Thank you.

The following question will be given by Mr. Steven Fox calling from Merrill Lynch. Please go ahead sir.

Hi, good morning. Just a quick question on inventories. Can you just clarify what your inventories did versus the end of Q4? Were they up or down?

Finished goods inventories remained the same - 3 weeks. Is that in answer to your question?

Thanks very much.

Okay.

The following question will be given by Mr. Michael Bang calling from Macquarie Securities. Please go ahead sir.

Good evening. I'd just like to clarify an earlier comment that you made. You said that out of the P6 eventually that one-third will be for TV and two-thirds will be for Monitor. Then I have a follow up question.

Oh did I say that. If I said that, which I don't think so, I apologize. I think I said one-third for Monitors and two-thirds for TVs.

Okay and also moving to page 14 for your ASP guidance, I'm assuming that this is based on US dollars and if you could tell me your Korean dollar Won assumption for the end of 2Q that would be very helpful?

We think the Korean Won will strengthen a bit further versus the first quarter in the second quarter. It's very difficult to give you an exact number. So I'd rather give you the trend.

Right, thank you.

Only 2 participants are waiting with their questions. [OPERATOR INSTRUCTIONS]. The following question will be given by Mr. C.J. Muse calling from Lehman Brothers. Please go ahead sir.

Yes hello. A couple of questions for you. You emphasized a 24% increase in shipments and only 13% increase in capacity. Should I take the differential there to mean sell through of existing inventory?

No, I think it relates back to what I said before on P6 having a better CCF and also more productivity in our other fabs than we anticipated. But that's basically the main reason for the difference.

Oh I see. So I guess if you were to give a percentage breakdown of what drove that difference, how much of that would come from inventory do you think?

Inventory stayed at the same at 3 weeks. So there is hardly anything attributed to that. So it's mostly the better CCF capacity conversion.

And second question. You alluded to driving down prices by having second source for glass from NEG. But given your faster than expected ramp of P6, at least for my aspirations, do you foresee any issues out there for supplying Gen 6 glass?

Before we start doing any fabs we make, as you know, a long-term agreement. So we secure ourselves a supply. In that light, the addition of more NEG glass was also anticipated. So we do not feel that there is any concern from our side at this moment on P6 glass.

Okay and do you have a view as to where pricing for glass will go in the next couple of quarters?

We feel that the pricing will have a tendency to come down. The volume that is brought on is very large. We think for us there will be no supply issues. We're the industry leader and industry suppliers build the capacity for the industry leader.

Also we see 1 new entrant coming in which this year it may not play a very large role. But certainly significant in terms of adding to the better pricing circumstances for LCD manufacturers in terms of glass off take.

And how quickly do you think Sharp can actually get into the game and supply the next Gen glass?

Well that, as you know they have to invest in more furnaces. My understanding is there is 1 now based in Germany with the back end I think in Japan and they will expand, at least that's my understanding, 1 furnace in Germany and then eventually build 1 in Japan or in Korea.

And final question. You guided to double-digit growth in output for 2Q. Any chance of tightening up that guidance a bit?

No. At this moment I would like to stay with the guidance given.

Should I take that to be the low end or high end?

As per guidance.

It's worth a try. Thank you very much.

Yes.

The following question will be given by Mr. Ivan Goh calling from Dresdner. Please go ahead sir.

Hello. I've got a couple of other questions. Firstly, can you just perhaps talk us through a bit on your EBITDA margin? You guided for mid to high teens from 13% in Q1. How much of that increase is do you think is coming off costs down and how much of that is coming from just for the ramps up you take efficiency gains and all that? Cost downs I mean in components.

I think most of that will come from P6 because the productivity improvement at P6 is quite significant. Of course, the components will also contribute. But what's the emphasis? It's definitely on the P6 ramp and the fact that we're getting better in producing larger and wider TV panels.

Can you perhaps give an idea of how much your bill of materials could come down from Q1 to Q2?

Well as I said earlier, overall cost of product will come down to a sustainable level - 10 to 15%. It differs a bit per product.

If you look at TV where material costs are high and because we're ramping it in P6, you know the yields are not and the capacity conversion not up to the target yet. Although the trend is very, very favorable. Then the cost there will, the bill of materials will have the potential to come down more than in more mature products that we produce in other factories. That's basically all I would like to say about the bill of materials development.

Okay and just on the other hand, can you perhaps talk a bit about whether you expect there to be any shortages of any parts as we go through to the end of the year, especially in Q4? You talked a bit about glass. But perhaps can you expand that a bit to other components?

There is still our understanding is a rumor on [back] fill shortage that could affect the polarizers. We don't think we will be affected by that. But it could be the case.

Also, we had some -- we have seen a little blip in Q1 in lamp. 4 of 5 lamp is my understanding. There were some shortage in that, but that seems to have been corrected.

In glass supplies, we think there is, at this moment from where we stand, reasonable supply certainty for most of the panel makers. So at this moment I do not see any big shortages upcoming.

And finally on your P7. Perhaps can you perhaps talk about whether your cut glass partners in P7 are exactly the same companies as P6, excluding energy?

Yes. They will be.

Alright. Thank you very much. Bye bye.

The following question is by Mr. Sunil Gupta calling from Morgan Stanley. Please go ahead sir.

Hi Ron. I wanted to have a follow up on the demand situation for Monitors. Are you able to satisfy 100% of the Monitor demand that you have right now?

Actually at this moment we are still able to do that. But we feel that when the -- sorry when TV sales ramp more, specifically the larger and wider sizes - 32 and 37 - there could come a time that will be something that we have to take a decision on. But at the moment there is no issue.

Thanks and finally I wanted to go back to your earlier response on FX and the way you hedge FX. You made a comment earlier that you expect Korean Won to appreciate in Q2 and perhaps in Q3. What does that do to your margins given your hedging policy? Are you able to capture this gain and does it also mean that you cannot capture that in your EBITDA margin?

Well hedging is an instrument that gives us some mitigation. It doesn't give us immunity for ForEx. It would depend also on the speed of the Korean Won depreciation.

Of course, as we move along also and we roll over contracts, or exposure hedging on a 12 month basis, then the rates that we contract is, with a strengthening Won, getting slightly lower. So already in the last conference call I said that the ForEx impact is going to felt more in the remainder of the year than we have seen so far.

Okay. Thank you.

Yes.

The following question will be given by Mr. Matthew Smith calling from CIBC. Please go ahead sir.

Good evening gentlemen. I was hoping you could expand on your guidance that you expect supply/demand equilibrium to tighten and get stronger as we go through the year. What are your assumptions there? How much of it is related to LCD TV? How much of it comes from say poor yields or component shortages and so on? It would be good if you could just elaborate a bit. Thanks.

We think there is, in Q1 there was over capacity as we stated. We feel that in the second quarter we can see signs of stabilization starting to come and we think in the second half of the year, mainly towards the later part of the year, tightness will set in. So we don't want to change the earlier given guidance.

Can you elaborate there on the sources of why you think it will tighten? I mean is it solely coming from LCD TV at all? Can you see it being that strong or is it due to component shortages or?

Okay. As I said earlier I don't -- we as a Company don't expect any imminent component shortage at this moment. So the tightening will come because the Monitor segment is growing in unit volume and also in average size. They will ask more glass. As I said earlier in the call, you should not forget that most of the capacity expansion is absorbed by Monitor growth. But the TV growth is of course, as a business, growing as percentage fastest. That will also contribute to the situation that I tried to depict for you in the guidance.

We also should realize that seasonality for panel maker on TVs is basically one-third in the first half and two-thirds in the second half whilst the PC seasonality is more 45/55. So those factors make us confident that the second half is where we will see improvement.

Thank you very much.

Alright.

The following question will be given by Mr. Jeff Kim calling from Hyndai Securities. Please go ahead sir.

Good evening. I have a couple of questions for you. The first question is on LCD TV. We are looking to the price difference between 32 inches TV and 42 inch HDTV. But however the price difference narrowed down a mere bill of US$500. So do you have any specific marketing strategy on LCD TV to stimulate future demand?

Yes. As I said earlier, looking at the Las Vegas show in January this year the fact that the HDTV trend is emerging is poised particularly well for the LCD TV story. We believe that LCD is much better positioned than other technologies to cater for HDTV and full HD resolution. So that is something that we will be emphasizing very strongly.

We have to do that more so because PDP has at this moment still an advantage of cost and perceived performance. But we feel that LCD is the better technology. So we're going to emphasize on that and we're working various marketing communication initiatives in our Company to bring that about. And of course we will also see co-operation with our customers to help solidify that story line.

Thank you. The second question is on the second quarter EBITDA margin guidance. You mentioned that second quarter EBITDA margin will be mid to the high teens. Is this a figure based on aggressive or conservative forecasts?

No, this is the guidance number that the Company has come up with. So we think this is the most realistic for us based on the current information.

So do you still expect that the strong unit volume growth will continue sequentially?

Well I said double-digit growth, which I think is still quite significant. On the quarter that was already better than a seasonal quarter. So that's pretty good. But other than that we don't think that there is reason to make any other assumptions at this moment.

Alright. Thank you very much.

Yes.

The following question will be given by Mr. Asheth Kay from Key Admin.

Thank you. Could you tell us what is your TV unit demand expectation for 2005?

You mean the LCD set?

Yes. TV set yes.

It's about 18m pieces.

And sort of what percentage of this do you expect will be 30 inch plus?

30 inch plus. We think that the portion of 32 inch is growing, is ramping up. It's very difficult to at this moment quantify that in terms of market share.

And you know as 1 of the most important producers, I'm sure you observed that data coming out of US suggests gradual increase in inventory with the TV OEMs for both actually plasma and PLP. Are you seeing any concern from your customers or do you think it will build up so far in this year with the TV OEMs in the US gives us an aberration?

Well if that is the perception. We don't have any strong indications from our customers that it will be an issue at this moment.

Okay. Thank you very much.

Okay currently there are no participants with questions. [OPERATOR INSTRUCTIONS]. The following question will be given by Mr. Jeff Kim calling from Hyndai Securities. Please go ahead sir.

Yes. Just a quick question on income tax rate in the first quarter. I think net profit is better than the dividend profit. Is there any tax benefit in the first quarter?

Well of course we reckon with the fact that we made a loss. So that gives you the reverse tax expense, or inverse tax expense. And the second is that the investment tax credit in Korea used to be 15% and it goes down to 10%. But at 10% is still very significant. So also we have had some increase in our -- or favorable development in our tax bill because of that.

And also the SG&A costs have increased in first quarter we consider. Do you think that this however should be continued going forward?

Well what is driving a strong part of the SG&A is the transportation expenses and with a 24% increase in volume which you should think about in terms of glass not in units. So the transportation expenses are quite significant. But we will do our best to maintain SG&A at the level that we've indicated.

Alright, thank you.

The following question will be given by Mr. [Artesit](ph.) calling from ABN Amro. Please go ahead sir.

Hi. Thank you. Just a quick question. You have guided for 9% shipment and you actually delivered 24% because you had better yields on your P6. How do your customers respond to a sudden increase in the level of the input from your investments? Can you very simply supply us with the fact that you have 24% without affecting price too much? And if you're expecting a second half recovery, why don't you hold on to more inventory instead of trying to sell through the entire increased production in the first quarter?

Yes. As we said earlier, working capital management is something that we're very keen in holding on to. We do not produce on inventory. That's not how this industry basically works. I mean pushes an order and build inventory ahead of time. We will in principle sell what we make and customers were basically -- I don't know if they were surprised. I don't think so because we have been quite good and co-operating with them on their roadmap, their product roadmaps and outlook. So we think then the match is quite good.

Any particular customer segment which picked up the increased production off you which kind of was a surprise customer to you which you developed in the last quarter? Picked up the increase 15% production.

So I think the PC segment was very strong in absolute terms. And then within that Monitors. But TV, as a percentage grew fastest, as I said earlier.

Alright. Thank you.

Currently there are no participants with questions.

Well we actually have a bit of -- we take 1 more from the floor if there is any.

Okay. The following question will be given by Mr. Wong Chong Hou calling from SG Cowen. Please go ahead sir.

Hi Ron. Just a quick question. It's regarding whether the idea that PDQ occupied a 42 inch and above space and anything below that will be LCD TV. Does this kind of idea [whole worker] or it's not really visible going to 7G or 8G kind of capacity?

Thank you for the question. It's very clear indeed that LCD will be the unchallenged technology 30 to 40 inch. We believe that 42 and 47 are segments that will also be very feasible for LC to perform in. We feel that an alternative technology like PDP will have difficulty delivering full age performance in a cost effective way and that's where we think we have a stronghold over PDP a lot. So we are inclined, and that's what we're building P7 for. Optimize for 8 cuts of 42 inch and also 6 cuts of 47 inch. We're inclined to make our inroads into that segment because we think it is very viable.

So in our opinion, there is no doubt that LCD will enter that segment.

But that's a bit conflicting what associate Company right whose doing something on that space?

Sorry, who is?

I mean your PDP site in LGE right.

Basically we don't have a PDP sector. So just LCD.

Yes I know, but your related company is doing something on that space and there seems to be an idea that probably that space LCD may not be that competitive on 42 inch and above. But you don't think so, is it?

Yes. Well of course if you ask me I'm slightly biased which you have to forgive me for. I'm sure when you ask them you'll have the same. We think that PDP will basically move north of the 40 segment and that's where they probably have very viable opportunity. But we definitely think that LCD will be eventually in a position to be cost wise on par with PDP and therefore be certainly cost wise and also technology wise the preferred technology by the consumer. And we think that that realization is starting to get more clear. But as I said earlier, we as LG Philips LCD need to do more to help communicate that message. But we are confident that the 40 inch segment is a very viable segment for LCD.

Based on your own calculation, 42, 47 inches space that you would be interested in?

Yes.

Alright. Thanks. Thanks.

Currently there no participants with questions.

Thank you ladies and gentlemen for calling in tonight. We certainly appreciate your interest and we look forward to talking to you again very, very soon. And thank you for joining in.

Thank you. Goodbye everybody.