LG Display Co Ltd (LPL) 2005 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the LG Philips LCD second quarter 2005 investor conference call.

This conference call will be divided into two parts.

First, the presentation, followed by the question and answer session.

During the presentation, all [technical difficulty].

I will now turn the call over to Mr. Jay Hong, Head of Investor Relations at LG Philips LCD.

Welcome to the LG Philips LCD second quarter 2005 conference call.

My name is Jay Hong, Head of Investor Relations at LG Philips LCD.

On behalf of LG Philips LCD, I would now like to welcome everyone to our global quarterly earnings conference call.

I am joined by Ron Wirahadiraksa, President and Chief Financial Officer of LG Philips LCD, as well as Duke Koo, Executive Vice President for Worldwide Sales, Bruce Berkoff, Executive Vice President for Marketing, and members of senior management.

We have allotted approximately one hour for this call.

We will spend the first part of the call reviewing our prepared remarks, which correspond to the slides which you can find on our website, www.lgphilips-lcd.com.

Following this, we will take questions until the end of the call.

Before we move into discussion of the earnings results, you should be aware that this conference call may contain forward-looking statements, including statements, among others, regarding LG Philips LCD's expected future financial performance.

You are hereby cautioned that these statements may be affected by important factors, among others set forth in LG Philips LCD's filings with the U.S.

Securities and Exchange Commission and its second 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.

Please take a minute to read the disclaimer.

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

Thank you, Jay.

Welcome to our Q2 '05 global conference call.

It is my pleasure to spend the next hour with you, during which I will review our second quarter earnings results, discuss our performance highlights and conclude with our outlook.

Following the presentation, we will have a session to answer your questions.

During this call, we will highlight the opportunities that exist in our dynamic industry and reinforce LG Philips LCD's leadership position.

Please do not hesitate to contact us in case you have further questions.

We are reporting today consolidated Korean GAAP, with an appendix to this presentation that includes our reconciled U.S.

GAAP numbers.

Please turn to the next slide.

I would like to begin by offering some general observations [indiscernible] on the industry conditions and our recent strategic progress and operational successes.

During this past quarter, we continued to see an improvement in the industry environment, with stabilizing prices and sequential volume growth in line with our expectations.

The momentum in the TV segment is noteworthy, as we see retail pricing for many popular LCD TV sets reaching more attractive sweet spot levels, resulting in increasing consumer demand.

Turning to our recent performance, we continued to demonstrate our strong market leadership and ability to successfully execute.

This year, we regained our number one market share position in the industry.

For the fourth consecutive year now, our customers rank us the number one supplier in the annual DisplaySearch customer satisfaction survey.

The multi-year supply contract we have signed with HP is another example that LG Philips LCD is the preferred partner of the global brand.

We are pleased to be returning to profit in Q2 '05, with an overall performance that met our guidance.

Driven by price increases in certain products, our average sales price per square meter of net display area shipped was similar to our Q1 '05 results.

Also, in Q2 '05, we grew our volumes, especially in the LCD TV segment, where we are driving the market with our continued investment in technology, production, product innovation and customer relationships.

We were able to achieve sequential improvements in our cost reduction rate, with cash cost per square meter decreasing by 9%, versus the 1% savings we saw in Q1 '05.

Our cost structure continues to be impacted by the shift to large size TV products and the ongoing ramp up of P6, where learning curve cost benefits are coming through.

We continue to strive for further improvements in our cost reductions.

Finally, we want to highlight our progress in working capital, which significantly improved in Q2 '05.

This accomplishment is reflective of our prudent management and improved market conditions.

Please turn to the next slide.

In Q2 '05, we saw our revenues increase to KRW2.3 trillion, up 12% sequentially from Q1 '05.

This increase in revenues resulted from a growth in volume of our net display area shipped, which increased by 14%.

Overall, ASP in U.S. dollars per square meter slightly decreased in Q2 '05 compared to Q1 '05.

However, on a quarter-end basis, prices in U.S. dollars per square meter of net display area shipped were actually 1.6% higher at the end of Q2 '05, compared with the end of Q1 '05, which reflects both a strengthening market environment as well as our ongoing focus on larger and wider panel sizes.

Our total cost of goods sold increased 3% q-on-q, to KRW2.2 trillion, a relatively modest increase considering the 14% shipment growth.

Our cash cost of goods sold per square meter was $1,574 for the quarter, down 9% q-on-q.

The aggregate result of higher volumes, stable prices and ongoing cost reductions was margin expansion, with EBITDA margin improving by 6 percentage points to 19% and net margin also improving by 6 percentage points.

As of June 30, 2005, on the next slide, we had KRW1.3 trillion in cash and cash equivalents, which is similar to Q1 '05.

In the quarter, we raised $475m in a convertible bond offering.

Our net debt to equity ratio was 40% at the end of the quarter.

Our second quarter finished goods inventory turnover level was at approximately two weeks, an improvement of one week compared to Q1 '05.

Our ability to successfully implement our strategic blueprint is supported by a strong balance sheet and liquidity.

Please turn to the next slide.

Also, through effective management of accounts payable and accounts receivable, we were able to improve working capital in Q2 '05.

This improvement contributed to a sequential increase in cash flow from operations for Q2 '05 to KRW373b, a significant increase over Q1 '05.

Looking at capital expenditures through the end of Q2 '05, we remain on track with our 2005 guidance of KRW4.6 trillion.

We will continue to invest in future market opportunities and are proceeding as planned with our investments in P6 and P7.

Please turn to the next slide.

I would like to share more detail about several specific performance metrics with you.

Please turn to the next slide.

Overall, ASP in U.S. dollars per square meter stabilized this quarter, which is an indication of improving market conditions.

Directly related to our success with P6, we again led the industry in large area TFT-LCD market share last quarter, and shipped 1.1m square meters of net display area, an increase of 14% q-on-q.

Going forward, we plan to champion the market opportunity in the TFT-LCD industry, as we are strategically positioned to do so with P6 and P7, which produce large and wide panels.

P7, which is the centerpiece of LG Philips LCD's Paju display cluster, is expected to begin mass production of 42 and 47-inch panels for HDTV in the first half of 2006.

We recently began to install equipment in P7.

Please turn to the next slide.

Q-on-q TV revenue growth was 24%, which resulted in our TV segment increasing to 24% of our overall revenues.

The LCD TV segment is becoming a significant portion of the TFT-LCD industry, as LCD TVs are becoming more mainstream and are evolving as the flat panel of choice.

The TV segment is an important area of focus in our market leadership strategy.

As such, we have addressed this segment by developing a full product lineup to serve the growing demand.

Please turn to the next slide.

P6 remains on track and has reached an average of 70,000 input sheets per month in the second quarter.

In conjunction with the ramp up of P6, our capacity conversion factor continued to improve during the second quarter of 2005, thus allowing us to produce high quality large and wide-sized panels.

With this increase in net display area shipped, we are fulfilling the commitments made to our strategic partners.

This was most recently demonstrated by the announcement of a three-year agreement with HP, where LG Philips LCD will be their primary supplier of LCDs for monitors and notebook PCs, as I mentioned earlier.

According to DisplaySearch data, LG Philips LCD also led the industry for large area TFT-LCD capacity for the second quarter in a row.

This has been accomplished through our ongoing leadership in manufacturing productivity and customer intimacy.

Please turn to the next slide.

In Q2 '05, we saw our cash return on invested capital, defined as EBITDA for the period over average invested capital for the last 12 months, improve sequentially by 7 percentage points to 25%.

This was driven primarily by the improvement we saw in EBITDA margin.

As we have previously highlighted, cash ROIC is a key metric we focus on to assess our performance relative to our peers.

Please turn to the next slide.

I would like to conclude with our outlook, on the next slide.

As regards the adoption of monitors and TVs towards larger and wider screens this year, we expect to see the business environment continue to strengthen.

As for previous guidance, the industry outlook for the second half of 2005 continues to be positive.

We expect to see q-on-q growth in Q3 '05, especially as LCD TVs further reach sweet spot prices.

For the third quarter of 2005, we expect our area shipments will grow by a mid-teen percentage q-on-q, driven by the increase in production.

On an end quarter-to-quarter basis, we anticipate our ASP per square meter to increase at a single-digit rate for Q3 '05 compared to Q2 '05.

Our forecast for 2005 CapEx remains at KRW4.6 trillion, of which KRW3.1 trillion is for P7.

We estimate our preliminary CapEx range for 2006 to be between KRW3.5 trillion and KRW4.5 trillion.

This includes an expenditure of approximately KRW1.7 trillion for P7, upgrades to our existing fabs and future production facilities.

We plan to start mass production of P7 in the first half of 2006, to further expand the TV market.

Within this dynamically expanding industry, LG Philips LCD remains well positioned to capitalize on growth opportunities.

We are encouraged by the strong increase in LCD TV revenues that we saw this past quarter.

In closing, I would like to recap a few key accomplishments.

Over the past year, LG Philips LCD has regained its number one market share position, began ramping up the world's largest Gen 6 factory, P6, in a timely manner, commenced construction of P7, the world's largest Gen 7 factory, and instituted global practices for corporate governance with a majority independent Board of Directors.

We would like to thank you for your continued support and confidence in LG Philips LCD's strong performance and market leadership.

I will now turn it back to Jay Hong to moderate the Q&A.

Thank you.

Before we start the Q&A, please note that we will take one question per person at a time.

Now the Q&A session will begin. [OPERATOR INSTRUCTIONS].

The first question will be given by Mr. Chong Kim, CLSA.

Please go ahead, sir.

I guess first on depreciation and then related to that, a little bit more specificity, maybe some more details on your CapEx.

Depreciation in the second quarter seemed a little mild.

There wasn't a very big jump quarter on quarter.

Do you anticipate that depreciation growth will be similar in the next two quarters, like what we've seen in the second quarter?

That would be the first question.

The second one is that the range that you've given for 2006 is a bit broad.

What are the key variables for you right now, in terms of how that CapEx number will get finalized?

Okay.

I think if you look at the depreciation number in Q2 '05, it's slightly higher than it was in Q1 '05, and that was slightly higher than the one in Q4.

But essentially, the pattern remains more or less the same.

It's increasing, actually, even a little bit, because we ramp up more capacity of P6.

Please bear in mind that in the meantime, we also depreciate still on our existing fabs, for example our G5 line.

And we depreciate machinery and equipment in four years' time, so we also have basically to cater for that.

So in that case, you can safely assume that for the G5 lines the depreciation remains constant and that for the G6, the depreciation is gradually improving.

Also please bear in mind that the depreciation per square meter is getting better, because in the beginning [indiscernible] the depreciation for more indirect equipment or per square meter of glass.

On your question on CapEx, we have given a range.

I have indicated the amount for P7 - KRW1.7 trillion.

There are upgrades there for existing fabs.

We've talked about future production facilities.

Plans for that have not been finalized yet and also the decision making around that.

So when we are more clear on what it is going to look like, we will communicate with the market in time, as usual.

Does that answer your question?

Yes, well, it does answer my question, although I guess being greedy I would have asked for a little bit more detail, but thank you.

Maybe just one last question before I get off the call here.

In terms of 9% cost reduction or cash cost reduction that you saw on a square area basis, can you give us some guidance on what we can expect over the next six months for additional cash cost reduction on a footprint basis?

Well, as you know from last call's guidance, we have said that in the past we have been able to bring down costs annually 15 to 20% and that we see an average sustainable rate going forward 10 to 15%.

We think that we will come out in total this year at the higher end of that range, so it will be closer to 15% for this year.

For the full year?

Yes.

Thank you.

Thank you.

The following question is from [Taiwan].

Please go ahead, sir.

Thank you.

I have one question about your glass procurement strategy for Gen 7, which you are going to start in 2006.

Could you just elaborate us how you are going to get the glasses and whether everything is secure?

And also, there are some talks about the CCFL shortage in the market and how you are positioned on that.

I'm sorry, the last part of your question again, please?

There are also some talks about the shortages of CCFL.

Okay.

CCFL lamps and how you are positioned on that in the year.

Alright, I'll start with your -- the latter part then.

The CCFL lamps for LPL is not an issue.

We are availing of enough supply.

As you know, the industry typically builds capacity for the industry leaders and we think also fill their order portfolio with some emphasis on the industry leaders.

So we don't see a shortage there.

On the glass, we have three main glass suppliers - Samsung Corning, NEG and Asahi.

There is, as we noted, a fourth entrant, Schott from Germany, but they're only recently beginning.

Our main glass supplier is Samsung Corning.

We have, as we reported last quarter, concluded a joint venture with NEG specifically for P7 glass.

And that is called PEG, Paju Electric Glass, and it will be co-located in the Paju display cluster, a little north of Seoul.

So with that, we have made already quite big progress on securing ourselves some stable glass supply or stable glass supply.

Okay?

A follow-up question on the glass side.

When this joint venture will start production on glass?

They will start production in the first half of next year.

As we have also said in earlier guidance, we will start the ramp up of Gen 7 in the first half of next year.

Okay?

Okay, thank you.

You're welcome.

Thank you.

The following question is by Mr. Dinwoodie from UBS.

Please go ahead, sir.

Thank you.

I was wondering if you could characterize a little bit more what you're seeing in terms of sell through of LCD TVs, and if you might be able to break down or distinguish any differences in different markets.

That would be helpful.

And a follow-up question - are you seeing any earlier shipments compared with last year, due to a concern of last minute orders that didn't make it last year and this year there's a perception that you have to move things earlier in order to get them ready for peak season?

Thanks very much.

On the sell through, let me say that we are particularly encouraged by the shipments increase that we've seen in the second quarter, that is on our side.

We also believe that the inventories in the channels for this time of the year, for this season, are quite okay.

Also, of course, in this quarter, the sell through is not as big as we expect in the second half, as we have also said in earlier conversations.

So on the sell through, we don't see, at this moment, any main issue.

Earlier shipments.

It is true that also, seeing the supply demand situation and related pricing situation, people tend to increase a bit their orders in the wake of that, so that is correct.

Thank you.

Thank you.

The following question will be given by Mr. [Tony Vento] from HSBC.

Please go ahead, sir. [OPERATOR INSTRUCTIONS].

The following question will be given by Mr. [Eddie Chick], ABN Amro.

Please go ahead, sir.

Thank you.

This is Eddie Chick from ABN Amro.

A quick question on the ForEx exposure on the operational side.

You had mentioned earlier that you normally completely hedge your ForEx exposures.

Does that mean that you wouldn't really benefit from a depreciating won going into the third quarter?

If not, could you give us some [indiscernible]?

Yes.

Well, what we actually said is that we hedge 100% of our committed exposure and about 30, 40% of our anticipated exposure.

So in any case, the ForEx exposure is for a substantial part hedged.

And yes, for that part we would not benefit from a depreciating won, as we also are protected somewhat, as we've seen in previous quarters, from an appreciating won.

The following question will be given by Mr. JJ Park from JP Morgan.

Please go ahead, sir.

Yes, thank you for the presentation.

I have a quick question [indiscernible].

I'm just looking at the parent and the consolidated earnings.

Looking at the past, the consolidated numbers are always better than the parent on both sales and the operating profit.

In the second quarter, there is a marginal difference on the operating level, despite the higher consolidated sales.

So I'm just wondering what makes the difference in the second quarter compared to the past?

And I will have a follow-up question.

Okay.

Thank you for that question.

Actually, we run the Company on a consolidated basis.

So there, for us, is no real need to comment on the non-consolidated financials.

The differences are always determined by basically what we call Group movement - the shipment of products between the parent and the subsidiary.

But as I said, for us, only the consolidated numbers are relevant.

Okay, thank you.

Thank you.

Second question, you talked about the multi-year contract with HP.

Could you elaborate [indiscernible] let's say, the price negotiations and the [indiscernible] binding for you to supply a certain amount to the HP?

Actually, the HP contract is a three-year contract.

It is for -- we don't basically make commitments on quantities.

And we, of course, are very happy with the agreement.

The agreement is mainly on notebook PCs, also monitors, and if there is an opportunity we could even think about TVs.

So how do you negotiate the price?

Is it based on the market price, or are you willing to give a certain volume discount, given the long-term contract with HP?

Of course, LPL always does all business on an underlying basis and within that we have bigger and smaller customers.

And the pricing that we apply is basically geared to the normal standard of business practice.

Okay?

Yes.

Thank you.

You're welcome.

The following question will be given by Mr. Ivan Goh from Dresdner.

Please go ahead, sir.

[Inaudible] or cash cost reduction, because in the first quarter you did 1%, in the second quarter you did 9% and I think you've guided for 15% for the full year, which means about 5% more to go for the second half of the year.

Can you perhaps tell us what is driving that, what drove your cash cost reduction in the second quarter and what is going to drive the additional 5% in Q3 and Q4?

Thank you for that question.

Cost reduction, cash cost reduction was driven by design improvements that we have applied.

You may recall the last quarter earnings call, where we said that some of the more cost-innovative products were taken up later in the line than we expected.

That is in the process now, in Q2, it has been in the process of improvements, strong improvements.

So cost innovation is one.

The capacity conversion factor in the Gen 6 line has improved, as I discussed earlier.

And furthermore, we are still able to bring down the cost of materials.

So basically, you can say it's three main items - process there, the capacity conversion factor, design, the cost-innovative products, and the cost of purchased material.

And what will drive that cash cost reduction in the second half of the year?

Well, we have ongoing reduction programs.

The Gen 6 line is, in this quarter, we foresee to ramp to 90K input sheets.

That is our target of design capacity, as we have always communicated.

So going forward, the room to improve costs from that is going to mitigate but we will keep on pushing on further costs down.

Okay.

The second question relates to the product mix change.

In the second quarter your TV proportion did increase, as you had previously forecasted.

Just wanted to find out by the end of the year, in the fourth quarter, what percentage of your revenues could possibly come from the TV segment?

In terms of shipments, basically we have guided for the third quarter mid-teens shipment increase.

We do note that of the increase, the growth that is, square meter change quarter on quarter, the main part, so far, has still been taken by larger and wider monitors.

And the result is something I elaborate on earlier, the TV segment is the fastest growing, but the uptake of glass is still largely by the monitor segment and to a certain extent also notebooks.

We expect that the ratio could turn more in the favor of TV.

But still, in terms of shipment growth, main part will be taken by larger and wider monitors.

And the last question is regarding the HP contract.

Can you perhaps give us an idea whether this HP contract is a renewal of a contract that you had before, or is it completely new?

Is it something that -- is such contracts common in your business?

And lastly, where do you see the industry trend is?

Do you see a large proportion of your sales coming through on this long-term agreement, or is the industry going that way, or are we -- is industry changing?

Basically that is my question.

Thank you very much.

Okay.

Thanks for that.

The contract with HP is basically, well, it's a new contract, but it's also the renewal and the reaffirmation of our existing relationship.

We have always had a very strategic relationship with HP and we are very proud of that.

You asked if this kind of contracts are common.

I can only speak for LPL, the -- one of the cornerstones of our strategic success is the customer intimacy that we have experienced and that we practice.

As you know, we do business with seven out of the ten consumer electronic brands and all of the major IT brands in the world.

We think that because of this position and the company that we are, the largest merchant supplier, not competing with our customers, working very closely together to help bring new and innovative products about, that because of that we are able to conclude these kind of long-term agreements.

Is that a significant part of your sales today?

What percentage of your sales today is locked into such long-term contracts?

I can't really comment on that, but you can rest assured that with more customers, we have long-term relationships.

They don't all take the form of the contract type with HP that you have seen.

But with all our customers, actually, we are in a long-term supply relationship, customer supply relationship basis.

Thank you very much.

Yes.

Thank you.

The following question is from Mr. [Larry Lee] from Samsung Securities.

Please go ahead sir.

The following question will be given by Miss [Soo Jung Kim] from Good Morning Shinhan Securities.

Please go ahead ma'am.

We will move onto the next question.

The following question will be given from Mr. Jeff Kim from Hyundai Securities.

Hi, thank you for the presentation.

I have a question on the sweet spot prices for LCD TVs.

What price do you expect for the sweet spot price level of 32" and 37" LCD TV?

I will have the follow-on question after that.

Okay.

Thank you for the question.

We maintain our guidance as before, that by Christmas this year we expect the 32" wide TV to be available for $1,499.

And that will be, I would like to add, for the major brands.

Do you have a sweet spot price level of the 37"?

37" will probably be above that.

I see.

The second question is would you tell me what sort of negative impacts there are in non-operating items?

Because in the second quarter, regarding profit, it's much lower than the operating profit.

I am sorry; you will have to repeat that for me.

I didn't get that.

Yes.

Would you tell me what sort of negative impacts are in non-operating items?

Because recurring profit is much lower than the operating profit in the second quarter.

Okay.

That has to do with foreign currency contracts and also the inventory evaluation is in there.

Okay.

Then my last question is, in terms of cost reduction, what kind of cost reduction do you hope to achieve in the second half, except for the ongoing ramp up of Gen 6?

Yes.

As I said in answer to a previous question, we think that this year we'll come out at the high end of the range of 10% to 15% that we guide for on average sustainable basis, so close to 15% for the year.

But I heard that the LPL is now working on the union of [indiscernible] technology and the [SE] driver ICs - is that true?

We are continuously working on all major components.

And what we do in driver ICs is basically multi-channeling.

That means that we bring the channels of two chipsets on one chipset.

That is ongoing.

We are working on that.

That is part of what I earlier labeled cost-innovation products from design.

Okay.

Thanks very much.

Thank you.

The following question is from Mr. Eddie Chick from ABN Amro.

Please go ahead sir. [OPERATOR INSTRUCTIONS].

The following question is given by Mr. [Jeff Alrama] from [Speedwell].

Please go ahead sir.

Hi, good evening.

I don't know if you can comment on your perception of competitor issues on the 6G and 7G ramp up right now?

I guess the continuation of that would be - how do you best assure minimal issues on your ramp up of P7 next year, both on the panel and the component side?

Well, we expect to start ramping the Gen 7 line in the first half of '06, as per earlier guidance.

That remains unchanged.

We do note that it seems to be so that Gen 6 and also Gen 7 ramps are behind their original schedule.

It can be very difficult to comment exactly on what kind of delays we are talking about, but we do know that.

On the component side for LG Philips LCD, as I stated earlier, we do not expect at this moment that there will be any major shortages for us.

So we expect to start the ramp of the fab in the first half, as planned.

Also in the Gen 6 line, at this moment we don't experience any major component shortages.

Okay.

And as far as scanners, you don't expect any kind of issues?

Well, we have had the kind of issue that applies basically to the whole industry and we've been working our way through that.

But as we said earlier, that will not delay the target design capacity in Q3 for the Gen 6 to 90,000 input sheets.

And I think maybe some other competitors may have a little more trouble with that.

Okay, great.

Thanks very much.

Okay.

Thank you.

The following question is by Miss Helen Huang from Goldman Sachs.

Please go ahead ma'am.

Hello, good evening.

Can you help me understand how you make the decision in terms of your capacity allocation to TV, to monitors?

Do you maximize revenue per 6G modifiers or you maximize profit, or there is other strategic thinking involved?

And also, can you talk about your percentage, 6G capacity allocation to TV at this point?

And how does that compare to previous quarters and maybe compare to the second half of this year?

Thank you very much.

In terms of allocation, allocation decisions are typically driven indeed by substrate size optimization, but that has more to do with the product screen sizes, as such.

Also, of course, with the strategic ambition we have, the customer desires and the profitability, so all those factors weigh in.

Now in TV, of course, you must understand that TV for us is not a short-term profit maximization issue.

For us, TV is a longer-term thing, where we are now and already have been working our way to get with larger and wider panels further down the learning curve, and that at this moment looks very promising.

So in our allocation, those factors are strongly weighted in.

In P6, the production of monitors versus TVs in the second quarter, I would say it's about half, one half.

And do you have a -- do you know how that split would look like in the later part this year?

Yes.

We have, as we announced last year, always intended the fab to run after the basic -- the main ramp up - one third for monitors and two thirds for TVs.

So we expect towards the end of this year to be in that ratio.

Thank you very much.

You are welcome.

The following question is given by Mr. Eric Lin from UBS.

Please go ahead sir.

Thank you.

I was wondering if you could give us some idea about the profit or profit difference in each product segment?

I mean notebook, monitor and TV, which products or which markets are at this moment the most profitable market for you?

I would say that most profitable at this moment is the PC segment, in the comparison with -- between PC and TV.

And as I said earlier, that is something we want to improve.

We expect that profitability will increase and improve as the market situation becomes better, as we further ramp up our fabs and as we further work on our cost down programs.

In a way, when were you expecting this TV turn out to become more profitable than PC monitors?

Well, it also depends, of course, on the fabs that we are making the TV in.

And we have gone through a difficult phase with Gen 6, ramping 32” and 37" wide, as you know.

On the 42" and 47", for example, we will have to go through a similar phase in the first half of next year, when we ramp the Gen 7 line.

But we think, once we are enough advanced on the learning curve for that, that the TV profitability will significantly improve.

To follow Helen's question, what's the product mix running at P5 and P4 phase?

P4 and P5 are both Generation 5 fabs, and we are making there PC products.

They run on their 100% allocation or capacity allocated to PC products for these two fabs?

I would say mostly these were PCs.

Occasionally there is some television products running in those fabs.

So we do make some TVs on the Gen 5 line, that is correct.

Thanks for answering my question.

Okay.

Thank you. [OPERATOR INSTRUCTIONS].

The following question is given by Mr. Michael Bang from Macquarie.

Please go ahead sir.

Thank you very much.

I have a question on the COGS per square meter on a generation base.

I think in previous conference calls you gave some color on COGS per square meter on P1 to P5 versus P6.

Just wondering if you could give some color on how that gap has been changing and if the cost reduction on the COGS per square meter base on P6 has been substantially different than, say, the cost reductions on P4 and P5?

Thank you.

Well, I thank you for that question.

I think what we have alluded to is that in interpreting the cost of goods per square meter number you should bring into your mind that we are ramping a Gen 6 line.

So in that respect, we have said that indeed we've – and without Gen 6 there was difference in interpretation [ph] on the cost, in the cost of goods sold per square meter number.

At this moment, we can say that the Gen 6 line has strongly improved in the cost of goods sold, so there is no need for us to make that kind of distinction.

And as the fab reaches its design capacity of 90K, we expect that to fall in line, as the cost in revenues per square meter between fabs tend to converge.

Hello?

Thank you.

Okay.

Thank you.

The following question is from Mr. Chong Kim from CLSA.

Please go ahead sir.

Ron, just a few more questions.

Going back to your guidance for ASP expansion, going into the third quarter, to what extent is that being driven by product price increases that we've seen so far in the second quarter?

And to what degree do you anticipate that for some of your notebook and monitor panels you will be raising prices?

And do you think that there is room to actually raise prices on TV panels as well?

Or, in terms of talking about ASP, to what degree is that a product mix effect?

And I have one question in terms of your fund raising and CapEx.

Okay, thanks.

As we guided for, we see our sales, average sales price per square meter of glass on a quarter-end-to-quarter-end basis increase by a single-digit percentage.

We do think that in the TV side, the pricing will be stable and that the main increase will come from the PC side in the third quarter.

Okay.

So PC application prices going up and TV panel prices stable into the third quarter?

Yes.

In terms of your recent fund raising, to what extent, once you get past this ADR, how much of that in terms of what you are doing in terms of CapEx for next year, the 3.5, do you think that post this exercise you will have enough cash and, of course, your operating cash flows to cover everything you need for Gen 7 ramp into the first half of '06, as you are expecting?

And then the second question related to that is why have you chosen to do an ADR strictly for the 1.2b versus, say, mixing that with a domestic offering?

Okay.

Thanks for the question.

In terms of funding, yes, with this equity offering, once we are past it, assuming it's successful, we will be fully funded there for P7.

So, of course, during the course of '06 we will do the ongoing, the normal debt funding that we would do, but in principal the cash is enough.

On your second question, why are we doing only ADR, the main reason for that is that the discount on secondary offerings of -- sorry, our follow-on offering of primary shares in Korea seems to be quite high, so we have a preference to go to the New York Stock Exchange.

And also, we would like to have a better geographical spread of our share.

Thank you.

Welcome, thank you.

Thank you. [OPERATOR INSTRUCTIONS].

The next question is from Mr. [Tony Vento] from HSBC.

Please go ahead sir. [OPERATOR INSTRUCTIONS].

It seems like there isn't any more questions.

Mr. Jay Hong, would you like to have more questions?

We have time for one more.

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Okay. [OPERATOR INSTRUCTIONS].

If there is no more questions, we'd like to thank everyone for participating tonight and look forward to seeing you again in the third quarter earnings release.

Thank you very much.

Good night.