LG Display Co Ltd (LPL) 2005 Q4 法說會逐字稿

We will now begin the conference of the fiscal year 2005 fourth quarter earnings results by LG. PHILIPS LCD. This conference will start with a presentation followed by a traditional Q&A session. [OPERATOR INSTRUCTIONS].

Now we shall commence the presentation on the fiscal year 2005 fourth quarter earnings results by LG. PHILIPS LCD. Please go ahead sir.

Welcome to the LG. PHILIPS LCD fourth quarter 2005 conference call. My name is Daniel Kim, Vice President of Investor Relations. On behalf of LG. PHILIPS LCD I would like to welcome everybody to our global quarterly earnings conference call. I'm joined by Ron Wirahadiraksa, President and CFO of LG. PHILIPS LCD. Also joining us is Buck Kwon, Executive Vice President and newly appointed Chief Marketing and Sales Officer.

We have allocated approximately one hour in total 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.

Following this we will take your questions. Please do not hesitate to contact us if you have further questions after this call.

Before we move on into the discussion of earnings results you should be aware that this conference call may contain forward-looking statements within the meanings of U.S. Private Securities Litigation Reform Act and Securities Regulations in Korea including statements among others regarding LG. PHILIPS expected future financial performance. You will question that these statements may be affected by the important factors among others set forth in LG. PHILIPS LCD filings with the U.S. Securities and Exchange Commission and in this fourth 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 this disclaimer and I would like to now turn the call over to our President and CFO, Mr. Ron Wirahadiraksa.

Thank you, Daniel and welcome to our Q4 '05 global conference call.

I would like to take this opportunity to wish everyone a happy and prosperous New Year and to further introduce Buck Kwon and Daniel Kim.

Recently we made a decision to combine Sales and Marketing under a single leader and Mr. Kwon, who I've worked with closely over the years, is an excellent choice for this important job. Prior to his position of Chief Marketing and Sales Officer, Mr. Kwon served as President of LG. PHILIPS Taiwan, Vice President of Notebook Sales and lastly Vice President of the Sales and Planning department for LPL and has been in the industry for nearly 28 years. He has been with us since the inception of the Company and has extensive experience in Marketing and Sales.

Daniel Kim, who you just heard at the introduction of this call, is our newly appointed Vice President of Investor Relations. He has been the President of LG. PHILIPS LC America for the past three years. Prior to this Daniel was Vice President of Monitor Sales and before joining LPL, Daniel gained experience in the semi-connector industry and also had an extensive engineering background.

During the next hour I will review our fourth quarter earnings results, discuss performance highlights and conclude with the outlook. After this we will take your questions.

We're reporting in consolidated Korean GAAP with an appendix to this presentation that includes our reconciled U.S. GAAP numbers. Please turn to the next slide.

Before we review our fourth quarter financial performance I would like to highlight the quarter's accomplishments and describe the dynamic environment in which we're operating.

During the quarter we continued to advance and advanced in our technology leadership, improve our operational efficiency and execute on our growth strategy led by LCD TVs.

We remain encouraged with the level of demand for our TV products as more and more consumers are choosing to purchase large and wide LCD TVs recognizing LCD technology as the flat technology of choice. As I'm sure many of you have seen in the media during the holiday season much of this consumer demand has also been fueled by reduced pricing at retail which is reaching even more attractive suite of prices.

In the fourth quarter, as we expected, the suite spot price for 32 inch branded TVs reached $1,499 and this demand actually created some shortages in our 32 inch TV panels. In addition we experienced greater than expected demand in our 37 and 42 inch TV panels. We know that much of this consumer demand is being driven by the continuing emergence of HD TV in many applications and we believe this will continue in to 2006.

Even more compelling, we experienced strong demand across all geographies including Europe, the United States and especially China, where we currently hold close to 50% of the LCD TV panel market. The demand in China has been stronger than expected with an LCD TV growth rate of more than 600% year-on-year according to display search. In part due to greater consumer demand for wide and large LCD TVs.

During Q4 we continued to experience sequential shipment growth due to strong seasonal demand and positive sales momentum in the TV and Notebook segments which helped soften the impact of challenging Monitor segment.

While our segments grew sequentially in Q4 they were lower than expected due to a production shift in our existing facilities. During this period we began to experience an unforeseen increase in demand for larger and wider TV panels from our global customer base particularly in 42 inch TV panels. This one-time production shift impacted our overall shipment growth to a certain extent. With this, however, we were able to meet the shift in demand of our customers during a critical period and it also facilitated our sooner than expected P7 ramp up in the first week January 2006.

P7 is the world's largest seventh generation line, not only in size but also in terms of production capacity. The short time it took to achieve mass production reaffirms LG. PHILIPS LCD leading ability in line construction and process technology. In addition, this early start will enable the Company to respond to the expected surge in demand of LCD TVs that will be further stimulated by upcoming events such as the Lunar New Year holiday and the World Cup Soccer in Germany. Please turn to the next slide.

Revenue grew to KRW 3t in Q4/05 up 8% sequentially from Q3/05. Our average U.S. dollar sales price per square meter of net display area shipped decreased 0.5% compared to the third quarter. Quarter-end to quarter-end prices per square meter decreased 4.1% to $2,035. Average sales prices per square meter increased due to a weakening pricing environment in Monitors and Notebooks towards the end of the year.

In the quarter total cost of goods sold increased 4% q-on-q to KRW 2.5t due to increased shipment levels. Our costs per square meter in U.S. dollars decreased by 4% q-on-q and declined 19% year-on-year.

On the cash cost basis these numbers were 6% and 90% respectively. In KRW costs per square meter decreased 3% q-on-q and 25% year-on-year. Cash cost in KRW per square meter decreased 5% and 25% respectively. We are very pleased with these results and will continue to focus on our cost reduction efforts as ongoing cost management is critical component for long term success.

Q-on-q EBITDA margin improved by 3 percentage points at 28 percent, and net margin improved by 3 percentage points to 11% due to the greater than expected cost reduction, particularly in the larger size TV panels. Please turn to the next slide.

As at December 31, 2005 we had KRW 1.6t in cash and cash equivalents. The reduction in cash and cash equivalents compared to our September 30, 2005 is the result of previously announced spending on our P7 facility.

Our fourth quarter finished goods turnover inventory level remained unchanged from Q3/05 at approximately two weeks.

Our balance sheet continues to be one of the strongest in the industry with net debt to equity ratio of 26%. We believe our balance sheet provides us with the financial flexibility we need to fund future growth opportunities. Please turn to the next slide.

Cash flow from operations increased to KRW 889b based on improvements primarily in net income. As we stated cap expending was KRW 1.42 due to the ongoing investment in our P7 product facility which begun mass production on January 1. Please turn to the next slide.

I would now like to go into more detail about several specific performance matrixes. Next slide please.

As I described earlier, the average sales price for the fourth quarter decreased to $2,112 per square meter of net display area shipped or KRW 2.1m. Total display area shipped for Q4/05 was 1.3m square meters, an increase of 8% q-on-q. Both our P6 and P7 facilities will drive our shipment growth in 2006 particularly as we strengthen our leadership in the large and wide LCD TV segment.

P7, which I will discuss in more detail shortly, is primarily focused on 42 and 47 inch LCD TV panels which complement our P6 plant that produces 32 and 37 inch LCD TV panels. Please turn to the next slide.

Revenue for the fourth quarter by product segment is as follows. Monitors represented 38%, TVs 34%, Notebooks 24% and other applications accounted for 4%. As you can see, TVs increased from last quarter and Monitors continued to decrease as a percentage of overall revenue. We expect these trends to continue as we balance our segment and product mix to optimize profitability and as we respond to our customer's needs for more LCD TV Panels. In fact, according to display search LG. PHILIPS LCD was the leader in LCD TV panel sales in 2005 and we expect to maintain leadership going forward in 2006 with the launch of P7. Please turn to the next slide.

Due to the demands of our customers we were able to increase the capacity of P6 in Q4/05 to 112,000 input sheets per month, significantly more than its initial design capacity 90,000 input sheets per month that was achieved in Q3/05. This increase is a good example of how we strive to continually improve our operational efficiency. Our industry leading portfolio of production facilities allows us to meet the needs of our customers across product categories and, equally important, respond flexibly as these needs change.

As I noted earlier, we have recently begun mass production at P7 for which the first phase is scheduled to reach a production capacity of 45,000 input sheets per month by the third quarter of 2006, and is expected to reach its initial design capacity of 90,000 input sheets per month by the first quarter of 2007. P7, the world's largest Gen 7 facility has been strategically designed for the efficient mass production of 42 and 47 inch wide LCD panels at 8 cuts and 6 cuts respectively. As a result LG. PHILIPS LCD will continue to lead the market in standardizing large LCD TV sizes in additional to capitalizing on the emerging HD TV market. Please turn to the next slide.

In the fourth quarter of 2005 our cash return on invested capital was 39% compared to 35% in Q3 '05. This increase is result of both the higher EBITDA margin and slight improvement in asset productivity as measured by sales over invested capital. Please turn to the next slide.

We now turn to look at our outlook discussion. Please turn to the next slide.

For the first quarter of 2006 we anticipate our area shipment in square meters of glass will increase by a mid-single digit percentage q-on-q due to the rapidly expanding TV segment. In fact, with the ramp up of P7 we expect TV shipments to grow more than 20% q-on-q.

We expect LG. PHILIPS LCD average selling price per square meter shipped at the end of the first quarter of 2006 to decrease by a mid-single digit percentage q-on-q as we believe the pricing environment for not only Monitors, but also for Notebooks, will further weaken.

This and the cost associated with the ramp up of P7 we believe will lower our EBITDA margin percentage for the first quarter of 2006 to the high teens.

Overall, as we look at 2006 we are well positioned to retain our leadership role in this dynamic industry by further meeting our customer needs, improving our operational efficiency, increasing our technology leadership and executing our growth strategy particularly in this fast growing and large LCD segment and in the Notebook segment.

The LCD TV market will continue to grow as more and more consumers respond to every more appealing suite per retail prices and an increasing amount of HD content. We expect that special sporting events such as the Superbowl in the United States, the Winter Olympics in Italy and the World Cup Soccer in Germany will be catalysts for LCD demand in the first half of 2006. In addition to these sporting events, we have seen a Lunar New Year evolve in to a strong buying season and we have seen interest growing in China for large and wide LCD TVs.

In 2006 we see an exciting growth opportunity for LPL in Notebooks, particularly for the large and wide product segment. LPL has the leadership position in this segment and we expect to maintain and grow this elite in the future.

From a financial prospective we anticipate growth in sales and EBITDA for the year. We also expect an increase in depreciation costs primarily due to P7 which will impact our EBIT and net income.

Our capital expenditure guidance for the year is KRW 4.2t, which will be used for ongoing investment in P7 and future production facilities. As part of these future production facilities, our Board of Directors has today approved KRW 453b to be utilized for the construction of a clean room and utilities for P8.

In conclusion 2005 was a positive year for LG. PHILIPS LCD highlighted by our position as the number one producer of PLCD panels for the year according to display search. We successfully ramped up our P6 facility to meet the growing demand for 32 and 37 inch large and wide LCD TVs and successfully prepared P7 for mass production. We expect to set the industry standard with production of 42 and 47 inch TV panels.

We also continue to be one of the best companies in Asia in terms of best practices in Corporate Governance. We would like to thank you for your continued support and confidence in our LG. PHILIPS LCD.

This concludes our fourth quarter earnings presentation, and we would now like to take your questions.

[OPERATOR INSTRUCTIONS]. The first question will be given by Mr. Chong Kim from CLSA. Please go ahead sir.

I've just got a couple of questions on the margin in the fourth quarter and obviously your guidance for the first quarter.

In terms of the operating margin it appears that 11% it seems some of your major competitors are on track to have a higher margin than you may be. To what would you contribute the gap in terms of profit margins? You did mention a product shift, that may be influenced your shipment volumes in the fourth quarter, can you also give us some more color on that?

And I just had a follow-up question on the first quarter margin guidance please.

Okay, thanks for that question. Actually there is basically on a continuing basis always somewhat of a gap because the differences in depreciation policy. As you know, we depreciate in four years whilst others do it in five years and longer. Other than that, we have indeed produced some of the larger and wider panels like 42 inch in the Gen 6 facility to anticipate the ramp up of P7. Other than that people will have to see what our competitors come out with so it is too early I think to make those kinds of comparisons.

For the first quarter then we looking for this large contraction in your EBITDA margin, could you just give us a little bit more detail? I think if we look at the history of your other FABS that you've brought on line whether it was fab5 or fab6 and also if you compare to some of the history of some of your competition that has Gen 7.

It feels as though the kind of impact on profit margins was not as great, so could you just give us a better sense of what's driving up your cash cost in the first quarter and driving down your EBITDA margin as much as it is? Maybe your yield assumptions, obviously that's a sensitive subject, but any detail would be greatly appreciated.

Alright, let me try to answer your question.

First of all we have guided for a mid-single digit price decrease and that drives most of the EBITDA margin guidance that we have given. And on top of that, we have indeed, Gen 7 P7 to ramp up. This P7 is of a scale that basically is very impactful on the Company and therefore the initial ramp will weigh in heaviest and previous of generations of Fabs which has less of that kind of impact. We would have to ramp up the Fab starting with capacity conversion factors that are much lower than the ones we are guiding for 60, 65%. And pending that the cost of materials will go up a lot. And added to that is, of course, the increase in depreciation expense. We expect our depreciation expense for the year to increase by about [15%] on an overall Company basis.

Could you model out the trend in margins for that G7 Fab so that you can make some sort of assessment about what the pattern of profit margins might be going forward after you take this big drop in the first quarter? Do you anticipate margin improvements starting in 2Q or no?

We certainly expect the Fab as it ramps further to improve. So the first quarter of ramp is always basically the most impactful and hence we have guided for the EBITDA margin. So based on that we would expect certainly the G7 performance improves and that improvement we foresee throughout the year.

Okay. Thank you.

Okay. Currently there are 10 participants waiting with their questions. And the next questions will be given by Mr. Christian Dinwoodie from UBS. Please go ahead sir.

Just a quick one. Thank you for answering the previous question. I understand the situation in the first quarter a little better. But would you mind telling us what your embedded forecast is for CapEx -- sorry for ForEx in the first quarter and maybe what you're doing in ways to mitigate what might be an appreciating one? And maybe you if could give a little bit of your detail of your exposure? Thanks very much. To the U.S. dollar versus the Won depreciation.

Okay. Well as you know, Christian, first of all thanks for that question. As you know LG. PHILIPS LCD hedges 100% of its committed exposure and it hedges part of its anticipated exposure. So we hedge maybe the larger part of our transaction. We not completely immune to ForEx impact. As you know we're not so long in dollars. We use exchange rates that are inline with the recent market development after depreciating Won and if the Won depreciated further than there would somewhat more of an impact. But part of that, as I said, is offset by hedging.

So for the -- for your forecast is actually more in line is currently the [inaudible] trade.

Yes. We do that dynamically. So we don't stick with a plan when we make the business plan in the fourth quarter.

Okay. Thank you very much.

The next question will be given by Mr. Brian [Scott] from [Walter Rock] Capital. Please go ahead sir.

Good morning, thank you. In terms of your forecast for Notebooks and Monitors with declining ASPs during the quarter, is there a way you can quantify that and when do you see stabilization?

Okay. Thank you for your question. For the Monitor generally we are not presented our forecast for the prior's year's EBITDA mid-single digit during Q1 so where you see the product-by-product I cannot give actually the EBITA by product-by-product but I can tell you the TV product is still the demand is strong so we keep maybe the price is not so strong. But the Monitors is still slow and the Monitor relatively the demand is strong so we think that contributing the low seasonality during Q1 so that's why the demand is a little bit slow but build up production supply is coming. That's why we are focused the price down the mid-single digit.

Now your capital expenditure forecast for this year is slightly higher than what it was. How does that CapEx get spent throughout the year and should we anticipate that perhaps going up as your facilities come on line?

Actually the CapEx line that we've given is slightly lower than what it was. The actual outcome for '05 was KRW 4.4t and we provided for KRW 4.2t. So there is not an increase in that respect. What we spend it on is basically part of P7 which still remains to be dispersed, that's about KRW 1.8t and there is KRW 874,000 for other mainly maintenance impacts. And there's amount of KRW 1.6t for future production facilities.

Now as we have mentioned earlier on the amount that was today approved of KRW 453b is for clean room and utilities for P8. Now on P8 we have announced last December that we will stand KRW 504b to construct the building. We as yet have not made about determination on the substrate size and the capacity. But we want to still keep you updated and posted on how the decision process goes so hence the announcement that we have made. And when we have made up that determination we will of course inform you in due course.

Comparable with your report of earnings results, two of your competitors announced cross licensing arrangement. Can you give us any way to think about that?

Yes. We can say it is quite a remarkable transaction, exactly what it means was announced very shortly before. We are not very sure how to assess this. But for the time being we take it as an input and if there is anything that would concern us in this respect, of course we will give an update as we go into the further earnings events.

The following question will be given by Mr. [Abs Ingis] from ABN Amro.

Thank you for that. Just wanted a bit more flavor again on the cash cost down for first quarter '06. Could you help us break it down between ex-P7 and P7 as to what kind of cash cost are you expecting for the first quarter?

And in a trend basis when P7 fully ramps up, will the cash cost per meter square will be any different than what you're seeing for other Fabs since you're more focused on TV production.

Okay, thank you for that question. Larger and wider TV panels use typically more material. They use more Lamps for example, the [technolized] units have been a larger part of the total cost. In terms of cash cost we don't give out specific guidance on that but the large part of the cash cost in the first quarter for P7 is related to what I said earlier on the ramp of P7, not being to be 60, 65% that's the conversion bracket that we foresee. So that will improve quarter-by-quarter as we ramp the Fab to its full capacity of 90,000 input sheets in Q1/07.

Right. Before a quite a big increase in the depreciation in the fourth quarter in the absence of any big asset commissionings how do you explain that? And for the first quarter what kind of sequential growth in the depreciation would you guide for?

Actually if you look in Q4 '05 depreciation it is higher than Q3 '05. Did I understand you correctly?

Yes. There was a fairly big jump there something like KRW 440b over KRW 490b. What's the reason for that big jump in depreciation in the absence of any big assets commissionings?

And going on to first quarter '06 because of P7 what kind of depreciation increase should we budget for?

I will struggle with the latter. I have already basically informed earlier that we expect our depreciation expense to increase by about 50% overall for the Company 2006 versus 2005. The depreciation increase is, first of all, we have more capacity out of six lines and also we have already started to depreciate part of the P7 facilities, the infrastructures. And that is including that amount.

And for first quarter '06 given the facts that have already depreciated some of P7 what kind of incremental depreciation would be looking for?

The total is basically increasing by 50% so you can assume it is mainly related to P7. One detail I maybe want to mention is that the first Gen 5 Line T4 will run out of depreciation in the second quarter of this year.

Thank you.

The following question will be given by Mr. Jay Lee from Daiwe. Please go ahead sir.

Hi, the year in sales for these LCD panel TVs have been quite good and what is your estimate for the LCD market in 2005 and what you expecting for this year?

And the second question is, you are telling the inventory is about two weeks and do you have breakdown as far as deposits?

Thank you for the question. For the TV market in 2005 is quite good, it grew a lot compared the year 2004, so that is very [inaudible] and the other research company we are talking about was between [inaudible] last year. But the DSO then we expect I even research the company they are focused maybe on double, on big increase.

You may know also the run was present already given the first half we expect a lot of [inaudible]. Usually the consumer electronics market the first half usually slow than the second half. But this first half we expect to Chinese New Year in China and also the sports events and also some new model launching in Japan. So we expect maybe a stronger first half and also because seasonality will be strong. So overall they may be more than double than last year.

To answer your last point on inventories, we saw slightly below two weeks for TVs in that -- in the two weeks finished [inaudible].

Going back to the TV question, so would there be seasonality between first half and second half? Are you assuming 50/50 or are you assuming like 40% in first half and 60%.

You know you are poaching for the question, the electronic products in the first half are around 35% and the second is 65. So this year the first half will be stronger and the second half will be strong also. So this is slightly different from IP and the portion, IP and Music is 40 to 60% or 45 to 55% but the see the consumer electronic market is 35 to 65% or 40 to 60%.

Okay. Thank you.

The following question will be given by Mr. Chris [Mews] from Lehman Brothers. Please go ahead sir.

Good evening. I have a couple of questions for you. The first one is clarification, did you say you're guiding for TV shipments growing 20% sequentially in 1Q?

That's square meters of glass base, that's the basis of our guidance.

And what are your assumptions there in terms of the average display size from 4Q to 1Q?

Well, as we move into more 42 inch TV production the average inch size will go up definitely. We started with 32 inch as you know in 2004 and started offering 37 inch towards the end of that year, we have ramped up more 37 even during 2005 and also mainly in the second half, so with the 42 inch we think the trend will continue of an increase in average inch size.

Great. In terms of the dispatch of LCD TV with larger display then we've seen [inaudible] are you concerned at all about any component or material shortages either CCFL or glass?

I think glass shortages we haven't seen. We don't really anticipate that at this moment. There may be at the beginning when people ramp more capacity for this long generation size glass.

Some -- but structurally I don't think there is any [inaudible] at this moment. We do see, as we reported in earlier conversations in the last quarter for lamps there is some tightness. And that's both for TVs and it was also the case for Notebooks to a certain extent.

Other than that we think the component situation is not very serious in shortage.

Alright. And as you plan P7 ramp, and if TVs say come in the lower end of the range, would you consider producing monitors or notebook panels there? Or are you strictly producing TVs off of that line?

The uncertain line we'll start with a 42 inch wide TV and later in the year with our 47. So, this year we'll be pretty much geared and we're giving certainly a 100% for TVs. But it was towards the end, so there'll be more weighting in TVs than with the Gen 6 line.

Okay. But if TV demand is not as robust, would you then put monitors after that?

Yes.

Or is it -- the cut not efficient?

Well, the cut for certain monitors is efficient, for example, our 24 and one inch wide. And if you look at the TV demand and TV situation at this moment, we don't really foresee that the demand will start to really disappoint, and we feel very encouraged by what we have seen so far. And as we guided for earlier, we think LCD TV demand will remain very strong,

But we [ready] to produce the high end monitors. So, I mean development in our factories and to produce in -- just in case.

Got you. Okay and last question. I know you don't want to give too many specific details on P8. You've talked about funding for clean room and building a facility. How quickly could you bring that online if you decided to -- TVs were so robust?

And what is the planned capacity at the end of the day there?

The planned capacity we will gear to the requirement of the market. So, that is something we will have to study further. We have, as I said, not made up our determination on the substrate ties exactly.

We -- if you look at P7 that took about 19 months from construction to mass production. So, we usually say 18 to 22 months from construction. And as we said already in last month, we have started the construction of that fab.

Got you, and a last question. Assuming you're talking about equipment suppliers, are they facing any difficulties with the larger size [monitor] glass and any particular areas where you're concerned?

Sorry, the equipment suppliers or the glass suppliers?

Equipment suppliers.

Equipment suppliers, no, at this moment we don't see that. We use both, for example Nitron and Canon surface. We don't foresee that we will have a repeat of what we have seen in P6 where we had some equipment trouble. At this moment we can say that the outlook for the Canon equipment looks very promising.

Great. Thank you very much for your help.

Thank you.

Yes, the following question will be given by Miss Helen [Han] from Goldman Sachs. Please go ahead madam.

Okay, the next question will be given by Mr. Daniel [Gustav] from Morgan Stanley. Please go ahead sir.

Hello Ron, I just wanted to follow up on your questions about cost reductions. Could you help us understand what kind of cost reduction you hope to achieve for the full year 2006?

Okay. We basically drive normally for 10 to 15%. And for 2005 we've been on the high end of that, as you know. And for 2006 due to the ramp of P7, we think the cut down will be on the lower end of that spectrum, 10 to 15%.

Of course, for TVs individually as we saw, for example with the 32 and the 37 inch, the cost down percentage will be higher than that. But this is for the Company overall.

Okay, and how about Q1? I understand that there's a lot of -- you have [broader prospectings] going on, because of your Gen 7 fab. But if I just leave that aside, on your existing business, do you think you will still be able to do 3 to 4% cost reduction, as you did in Q4?

We will, of course, try to, as we said earlier, to continue our success in bringing cost down. But we're not giving specific cost down guidance. But with the programs we have in place we should be able to achieve ongoing cost reductions.

Okay, alright. Thank you.

Okay, the following question will be given by Mr. Ivan Goh from DRKW. Please go ahead sir.

Hello, good evening Ron. A number of questions, firstly, just to continue on that train of thought, where would you most likely derive cost reduction this year outside of the depreciation it -- at P7?

Yes, at P7 well the material costs will significantly decreased as you ramp the fab further. And that goes basically for all of the components that we use.

Of course, as we talk about the TFT we talk of -- mainly about glass. And we have enough activities and projects defined around the full joint venture to say that we expect that [inaudible] means cost down will be in the same area -- the same range as the [S37].

As we commented earlier, our mainly cost down focus are on design, and on purchasing, and on process. So, with the ramping fab there's going to be a large extent on process with the capacity conversion factor ramping further, and bringing the fab hopefully quite soon to from five [masts] to a four [mast step]. But also, on the design there are more application of newer materials and technologies will be ongoing.

And of course, the purchasing leverage will also help to bring costs further down.

Given that would it be fair to assume that most of the cost down will actually be back end loaded rather than front end loaded?

In the year? Yes.

Yes, for the year.

Yes, I think that's a good assumption.

Okay. And early on in your previous remarks you said that there's been some shortages or tightness in TV panels. I would like to find out at this current point in time, are you still -- are you meeting all LCD TV panel demand that you are receiving?

No, we're not actually. So, we have some -- some are lower than 100% order fulfillment rate at this moment. I would say maybe 75 to 80%.

And if you -- if I refer you to your last conference call. At the time you had already talked about demand driven by Chinese New Year. And you were talking about anticipated demand that will come through with sporting events, like FIFA World Cup.

If you look at that time frame from October when you first made those remarks and today, maybe compare the two timeframes, can you comment on -- is the situation with regards to demand better or worse than what you had predicted then?

Well, we feel very encouraged. We think that LCD TV sales have come through. And particularly, China at this moment, 37 to 42 is the fastest growing market. So, we're particularly encouraged by that.

So, regarding that, we at this moment don't see any reason than -- other than that to be positive on the Chinese [inaudible] New Year holiday.

Okay and I have a last question, which is when I survey the market today I notice that not many LCD TVs on sale are truly high definition, meaning 1080i capable. So, I'd like to ask if you know -- if I can -- if I may know what the price premium between panels capable of only 0720T and panels capable of 1080i.

And secondly, if I can get an answer from you, what is the mix between the two and LPL currently?

And thirdly is, what is your time line for moving the mix towards true high definition? That is 1080i.

Well, at this moment we don't have a full HD production yet. It is -- we are going to introduce soon the 42 inch -- the full HD -- 47 inch full HD first. And the -- but the whole mix it is -- so the -- you mentioned about the price premium now between the 720 and 1080. That's -- it's usually there is the significant -- the raw material cost gap at this moment. But it's -- we expect it will go down when you ramp up with the -- on increasing the quantity.

So, maybe I cannot give the exact for the numbers and how is the premium. But still the premium -- at this moment the premium is high. But we expect this will go down.

And you can -- as you may know, the whole of the industry now is moving to the full HD and with the environment like and the -- some medias like through A or the HD TV. And also all of the broadcasting systems are moving to the full HD. So, we expect that the full HD this will create a lot of demand in the future.

Thank you very much.

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

Hello guys, this is actually Adam Hinkley from Active.

I was just wondering if you can comment on TV pricing given that Samsung's Gen 7 is optimized for 40 and 46 inch production. I was wondering if you expect to see some pressure on 37 inch and 42 inch TV panels in the calendar year '06.

As you may know already that in the market already the TV [market] [originate] a price that is close very to the -- already some the sweet spit -- the sweet spot price. So, it is the 32 and 37 inches now, or we believe it's [inaudible] to the sweet spot price, very attractive to the consumers.

So, even they introduce the 40 and 46 inches the pricing down. But still there is a gap between the 30 inch and 40 inch. And also, the TV even we expect the 40 inch -- 43 inch and the 47 inch that fully integrate will increase a lot of demand in the market, but still there is another in the mainstream. There's a -- up to last year was 30 inches, 32 and 37. Even the Q4 37 inches was increasing. So, we take this also 30 inches remain as a mainstream. Also, it's increasing a lot 40 inch -- the 42 inch and 47 inches.

So, the pricing impact we don't expect a lot of pricing impact on that. And -- but still, there is the strong demand in standardized already for the 32 and 37, even the 42 also. So, that's as you may see the -- it is not so many the manufacturers who produce 40 and 46 inches, so that can bear some different market.

Okay, thank you.

The following question will be given by Mr. Carl [Rister] from Derby Capital. Please go ahead sir.

I have two questions actually. Please excuse me for the first one I'm somewhat new to this story. But as I look at your CapEx plans of KRW4.2t and your cash, I think of under KRW1.6t. And it looks like you're burning cash and it probably gets a little worse with the guidance for a decline in profitability in Q1. I'm wondering how do you plan to address that and should we expect an equity raise, or an increase in debt? And how much longer can you put that off?

You had two questions, or this is --

That's the first question. Second question is around how to think about operating margins going forward. It seems like your operating margins in the first part of the year are going to be somewhat depressed, probably pulling forward some capacity expansions.

But just looking at the business somewhat cyclically it looks like in Q2 of '04 the last time you guys were at a peak in operating margins. Your operating margins at that time I think were over 30%, because if Q4 of '05 is also another peak in operating margins, it looks like you're peaking out in Q4 of '05 at around 13%.

What I'm trying to figure out is how to think about what future operating margin potential is at the next peak. Do you think you can ever get back to a 30% level again? Or do you think the peaks from here are going to be closer to the teens?

Okay, well, thanks for the questions. On the first one, CapEx minus 4.2 cash, you said and the 1.6. And due to the ramp up of P7 how it's going to work out, we hope we are going to come out with an equity issue this year.

As we have said in earlier quarterly earnings events, and -- so, we're giving guidance. We don't intend this year to come to the equity market. If you look at the cash position that we have that seems quite comfortable. We have a net debt to equity ratio of 26%. So, we can add further debt to the balance sheet without much hurdles.

And also, the EBITDA growth will be significant. I already pointed to an increase in depreciation of 50%. So, the operating cash flow will actually also increase substantially in 2007. So, the three combined we feel will give us a sufficient flexibility to fund the future CapEx needs and also in this year.

On operating margins, that time and you mentioned in Q2 '04, was a time when the EBITDA margin, it's our metric we prefer to speak about in terms of guidance, was 45%. And indeed, operating margins above 30%. And we have guided basically for a sustainable requirement of EBITDA of 25 to 30%. And in the last quarter there was 28%. And we have guided for the high teens for Q1.

So, probably due to the ramp of P7 combined with some price erosion that we have guided for also, this year we will come out on EBITDA margin the lower end of that range.

Does it answer your question?

I'm still not understanding on the -- so, you plan to use debt rather than an equity raise is what you're communicating.

Yes, correct. And what I also say is that our funding situation, the flexibility we have in the balance sheet will not be a hurdle to incur more debt.

Okay. Do you have the option of going to either Philips or LG for a capital infusion? Or that's not part of the plans either?

I think from the recent slowdown by Philips we can conclude that that is not really an option going forward.

Okay, thank you.

So, we don't intend to do any recapitalization incurring new equity.

Okay, the following question will be given by Mr. Oliver Lee from Alliance Capital. Please go ahead sir.

Hello, I have two questions. The first question is that you guide the new pseudo digital OSP in the first quarter. Do you estimate on color about [inaudible] percentage usually found on the monitor side -- notebook side, and [operate and digital on the] -- like, well, the TV side?

Well --

The second question is in the fourth quarter the operational expense rate actually was about 5.8%, about 1% percentage higher than the third quarter. Is that -- any typical reasons for that, and should I -- and should we expect that that ratio will continue throughout the '06?

Okay. Thanks for the question. If you look at the price guide we've given, it's in the mid single digit quarter over quarter and from Q1 over Q4. TV pricing will be slightly down we feel. So, basically the PC segment will be a little more down than that number.

On the operating expenses, in the fourth quarter we had to do some stimulation of the market. So, we have done some promotion. That was not a very large amount.

The main aspect driving this is the increase in transportation cost. As we ship larger and wider panels to further destinations, for example Europe, the transportation costs are really high. And that is one of the reasons why we are engaging in constructing a module plan at this moment in Poland. It will take a while for that vertical ramp. And so until that time we'll have to live with slightly higher transportation expenses. That is really the reason behind the increase.

The question on -- you mentioned about the OSP in the first quarter, you mention the TV [inaudible] has declined a little bit. And you just mentioned earlier on the procurement rate now is about 80 -- 70 to 75%. So, the -- any specific reasons for the TV panel price decline since, well, the procurement rate's so low.

Yes, actually I think I said 75 to 80% fulfillment rate. If you look at TVs and still we see the trend of set down price requirements. So, set prices will have to come down further in order to reach even better sweet spot pricing to trigger more demand from consumers. If you look at 32 inch wide it was 4099 at Christmas for branded product -- around Christmas of 2005 coming from about $3,000 in 2004.

So, probably in this year Christmas that price will go more to the $1,000 space. And that means that the next sweet spot price for the 37 inch wide, which is around $1,800 to $1,900 will also go down further. So, TVs will have to on an ongoing basis to come down to enable -- to trigger more demand and go for higher penetration. That's basically the reason behind that.

I understand your question why did you not increase the price if you have that low order fulfillment rate. But on a trend basis prices are coming down. And we are competing, of course, also with the PDP in the larger and wider sizes, in particular in the 42 inch segment. We will compete with P7, as we have said, once that fab is ramp, we will compete more head on with 42 inch HD television. That's the reason why TV is still slightly going down on an OSP per square metership basis.

And should I actually expect the profit margin on the TV panel production would be -- it will not have any impact on the -- this price reduction because of the cost down progress. Or you actually expect the profit margin will start to have a slight impact on that?

Yes, so due to P7 ramp actually there will be, as I said earlier, quite an impact on TV. And that is what will improve throughout the year as we move on in further quarters.

But TV profitability, which was at the end of last year positive, will come under pressure due to the P7 ramp. And we have to go through that phase to enter the 42 inch wide TV area.

Okay, thank you.

The following question will be given by Mr. Tony [Santo] from HSBC. Please go ahead sir.

Yes, thank you. I just wanted to get some more information on the TV market. What's your outlook for the TV market in 2006 in terms of number of units? And if I could get the breakdown for two categories only, greater than 40 inch and then 30 to 40 inch category please.

Okay, for the total market demand I explained this before already. That's an [ABR] that's roughly was around 20, or it depend on the research and it's still not finalized yet. But the forecasting rate into 22. So, maybe average around 20.

So, in this year the -- everybody are expecting around doubling that quantity. So, then you see the divide [inaudible] this year the [inaudible] TV are forecast around 13% for the 40 inch and over. And the 32 -- the 30 inch over is around 51%. So, that's the forecast of the -- [inaudible] by the space [inaudible].

And do you think that that's a reasonable forecast? That's a conservative or --?

I think this is a -- many [inaudible] as we mentioned those before already. The last year already they're shifting from 30 to 37 inches. And the 42 inch is really affected by customer and our customers they invested truly for the [40] inches a lot. And we expect a -- more some -- the full HD TVs in the later part of this year. So, we expect to make this from conservative numbers, yes.

Okay, great. So, coming back to the - coming to the next question on the customers, is there any difference you see in the customer profile? The people that were buying the -- in terms of your customers that were buying the 32 inch, 37 inch product from P6, and now customers that are in line to buy the 42 inch or 47 inch product from P7? Were there right logs, top brand, Japanese? Is there a shift in that?

As you know, we've got a larger size TV now. It's available except to buy in the first European market. The European market is 30 to 40 inches quite suitable for the European boom. And also now it's they're increasing a lot 37 inches and our larger size in China market.

So, for the key -- the definitive market even it was the -- they are forming the small. But, yes, before they are relative 20 inches and now it's 30 inches. It's the -- increasing. So, that's maybe the -- that's giving you some ideas about your question, no?

Because of time constraints we may have just one more questions. Thank you.

Okay, the last question will be given by Mr. Christian Dinwoodie from UBS. Please go ahead sir.

Thanks very much. Just one question on the Gen 7 fab ramp, in the forecast you have it spread over several quarters. And looking back at what you've said before, you typically tend to beat your forecasted fab ramp schedule. Is there something this time that should make us think that you'll -- you might actually require the full forecasted period to ramp up the seven generation fab is -- or are you just being a little bit cautious in your guiding?

Thanks very much.

Okay, thanks for that. We intend to ramp the fab in about 12 months. 90,000 is designed inputted capacity. We'll always try to, of course, hope to ramp the fab earlier than that. However, the Gen 7 line is, of course, the new line for engineers to develop much wider substrate size. The scale's much bigger.

So, we tend to be a little more, shall we say, prudent -- realistically prudent in giving out ramp schedules. Should we proceed at -- the ramp will significantly improve in terms of the ramp up speed then we will communicate with you on time.

Okay, great, Ron. So, that -- just to clarify, it's not necessarily a reflection of where you think demand will be, or component supply. It's just that it might actually take that long to ramp?

Yes. Generally speaking we take one as a ramp fab.

Okay. Okay, thank you.

Thank you.

Thank you. This concludes our Q4 '05 earnings conference call. You may contact the Investor Relations department if you have more questions.

Thank you very much for joining us and good night, or good morning where -- depending on where you are. Thank you.