LG Display Co Ltd (LPL) 2006 Q1 法說會逐字稿

Good morning and good evening. First of all, thank you all for joining this conference call. And now we will begin the conference of the fiscal year 2006 first quarter earnings results by LG Philips LCD. This conference will start with a presentation, followed by a divisional Q&A session. [OPERATOR INSTRUCTIONS]. Now we shall commence the presentation on the fiscal year 2006 first quarter earnings results by LG Philips LCD. Please go ahead, sir.

Okay. Welcome. Welcome to LG Philips LCD’s first quarter 2006 conference call. My name is Daniel Kim, Vice President of Investor Relations. On behalf of LG Philips LCD, I would 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. Also joining us is Bock Kwon, Executive Vice President and Chief Marketing and Sales Officer.

We have 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 into the discussions of the earnings results, you should be aware that this conference call may contain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act and securities regulations in Korea, including statements, among others, regarding LG Philips LCD’s expected future financial performance. You are cautioned that these statements may be affected by the important factors, among others, set forth in LG Philips LCD’s filing with the U.S. Securities and Exchange Commission, and in its first quarter 2006 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.

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

Thank you, Daniel. Ladies and gentlemen, welcome to our first quarter 2006 global conference call. During the next hour I will review our first quarter earnings results, discuss performance highlights, the trends in the industry and conclude with the outlook for the next quarter. After this we will take your questions.

We are 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. In the first quarter, greater than expected seasonal weakness in notebooks and monitors, and a number of companies shifting production from low-end monitors to notebooks and LCD TVs caused greater than anticipated price erosion. The seasonal weakness also led to lower shipments.

LCD TV demand remained strong, but was slightly below market expectations. There was also less than anticipated IT demand from Europe. Based on these factors, we publicly revised our financial guidance for the quarter on March 21.

In line with our revision, Q1 ’06 panel shipments fell by 5% Q on Q, and ASP at quarter end declined by 10% compared to the end of the fourth quarter of 2005.

Due to operational efficiencies, cost reduction and a smooth ramp up of P7, we are pleased to report a 27% EBITDA margin, which we believe is impressive in the context of the quarter’s weaker pricing environment.

It is important to note that, while we continue to invest in meeting the volume needs of our global customer base and increase our output, we are also very mindful that profitability is a critical metric of our success. We believe that the first quarter is a very good example of this focus.

We remain encouraged by the level of demand for our LCD TV products. We saw our TV shipments grow 20% Q on Q in square meters, as more and more consumers are choosing to purchase large and wide LCD TVs, recognizing LCD technology as the flat TV technology of choice.

We expect LCD TV set demand to reach 45m units for the year, given the expected decline in retail prices, the expected demand surge from the World Cup soccer event in June, and the increased availability of HD and full HD content.

Last year, for the holiday season, we indicated that sweet-spot price levels of $1,999 for 37 inch and $1,499 for 32 inch LCD TVs would be achieved. We believe that the set price points have been met last year. And by the end of this year we expect prices to reach $1,999 for 42 inch, $1,499 for 37 inch, and $999 for 32 inch LCD TVs. These attractive price levels will further drive demand.

Next slide please. Operational efficiency at all of our fabs, most notably P7, played a key role in driving cost reduction this quarter, countering price erosion. With a lower ASP and less than anticipated panel shipment levels, revenue was KRW2.5 trillion in the first quarter of 2006, a decline of 17% sequentially from the fourth quarter of 2005. Year on year, revenue increased 20%.

In the first quarter, our cost of goods sold decreased 7% quarter on quarter to KRW2.3 trillion. Our COGS per square meter in U.S. dollars increased by 5% Q on Q, while declining 14% year on year. On a cash COGS basis, these numbers decreased by 5% and 23% respectively.

In Korean won, COGS per square meter decreased 2% Q on Q and 18% year on year. Cash COGS per square meter decreased 10% and 26% respectively in Korean won.

Foreign exchange in the first quarter had a slightly negative impact on our income statement. We continue to hedge against committed and anticipated exposure.

We are pleased with these results and will continue to focus on our cost-reduction efforts as cost competitiveness is key to long-term success. We maintain our expectations of achieving annual cost reductions in the range of 15% on a square-meter basis.

Please turn to the next slide. Our balance sheet continues to be very strong, with a net debt to equity ratio of 33% at the end of the quarter. We believe this provides us with the necessary financial flexibility. As of March 31, 2006, we reported KRW1.1 trillion in cash and cash equivalents. The reduction in cash and cash equivalents compared to December 31, 2005 is the result of ongoing spending on our facilities.

Our first quarter finished goods inventory turnover level increased, in line with first quarter seasonal weakness from the fourth quarter of 2005, to just over three weeks. We consider this level healthy for this time of the year, and will continue to actively manage our inventory levels.

Next slide please. Cash flow from operations decreased to KRW261b quarter on quarter. Working capital declined by KRW500b Q on Q, largely due to inventory, fuelled by our P7 ramp up and seasonal weakness during the quarter. We also reduced air shipments.

CapEx spending of KRW0.85 trillion was according to plan and largely allocated to our ongoing investments in the P7 facility, which began mass production on January 1 and is ramping in line with our expectations. CapEx spending in the first quarter also included ongoing construction of the P8 facility. We have not yet made any final decisions on the substrate size for P8, but of course we will update you in due course.

Next slide please. I would now like to go into more details about several specific performance metrics on the next slide. The average sales price for the first quarter decreased at a greater than expected rate to US$1,953 per square meter of net display area shipped, or KRW1.9m.

The total display area shipped for the first quarter of 2006 was 1.3m square meters, a decrease of 5% Q on Q. As discussed, the area shipment was lower than initially expected due to greater than expected seasonal weakness in notebooks and monitors.

Next slide. Revenue for the first quarter by product segment is as follows. TV continues to grow very rapidly and, for the first time, has overtaken our monitor segment with 45% of revenue, followed by that monitor segment, at 30%, notebooks at 20%, and other applications accounting for 5%.

We have continued to increase TV and reduce monitors as a percentage of overall revenue. We balance our segment and product mix to better respond to high customer demand for LCD TV panels.

The breadth and flexibility of our facilities allow us to make timely production shifts to respond to customer needs. Our P7 facility enables us to meet the demand for larger LCD TV panels, furthering our leadership in the industry.

Next slide. We are pleased with the ramp up in efficiency of our new P7 facility. In Q1, P7 averaged 16,000 input sheets per month. P7 is the world’s largest seventh generation fab, not only in size but also in terms of production capacity. The short time it took to achieve mass production reaffirms our industry leading capabilities in line construction and process technology.

P7 is now ramping smoothly in line with our expectations, and should reach its initial design capacity of 90,000 input sheets per month by the end of 2006. P6 has also performed well this quarter.

Please turn to the next slide. In the first quarter of 2006, our cash return on invested capital was 30% compared with 39% in Q4 ’05. This decrease was mainly the result of lower sales caused by eroding prices, a shipment decline, and higher invested capital in the first quarter.

Next slide. We now turn to our outlook discussion.

And the next slide. For the second quarter of 2006, we anticipate area shipments in square meter of glass to increase by a mid to high 20’s percentage Q on Q, due to continued expansion of the LCD TV segment. In fact, with the ramp up of P7, we expect TV shipments to grow more than 50% Q on Q.

We expect the average selling price per square meter shipped at the end of the first quarter of 2006 to decrease by a mid to high-single-digit percentage Q on Q, as we believe the pricing environment for notebooks, monitors, as well as TVs will continue to see erosion. We believe this will help to reduce retail sweet-spot price levels and also further driving demand for LCD TVs as a result of that.

Our Q2 EBITDA margin will be impacted by continued ASP erosion and the expected further depreciation of the Korean won relative to the U.S. dollar. This we expect to offset partially by ongoing price reduction and the growing demand for LCD TVs. As a result, we anticipate our projected EBITDA margin will be approximately 20%.

Our capital expenditure guidance for the year remains unchanged from the fourth quarter of 2005 and is KRW4.2 trillion. Furthermore, we are also seeing ongoing growth opportunity for LPL in notebook panels, particularly for the large and wide product segments, as more consumers move to notebooks as a desktop replacement. In 2006, approximately 80% of LPL’s notebooks will be in wide format.

In the monitor segment, we expect growth will still continue as the shift continues towards larger and wider monitors, as well as multiple monitors. For example, we see monitors becoming larger as they emerge as a part of the multimedia package offering both TV and PC functionality.

We will continue to drive our growth strategy with cost reduction, including process innovation and material cost reduction efforts. Through these initiatives, we expect to be within the sustainable range of about 15% cost down per square meter for the year.

At the end of 2006, we expect over 20% LCD TV penetration due to reduced sweet-spot price levels which will drive growth. During the second half of the year, we expect to see stronger seasonal demand.

We would like to thank you for your continued support and confidence in LG Philips LCD.

This concludes our first quarter of 2006 earnings presentation, and we would like to now answer your questions. Thank you.

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

Hi, Ron. Just a couple of questions, the first one for your guidance in the second quarter and then the other question is related to not being able to announce yet what you’ve decided for P8.

For the second-quarter guidance, obviously you’re looking for a contraction in margins. And just doing the math on what you’re suggesting for revenue growth where you’re seeing, it looks like, very good recovery in volumes and pricing doesn’t seem that much worse than what you experienced in 1Q. Revenue growth looks pretty robust and, in fact, it’s the best revenue growth I’ve seen in nine quarters. So I’m a little puzzled as to what’s driving margin contraction in the second quarter to the degree that it is.

And if I could follow this question up with what I mentioned about P8.

Okay. Thanks for that question. Well, actually, the margin contraction is still caused by ongoing price erosion. And even though the quarter-end to quarter-end number you say is relatively modest, it’s still quite high and very impactful on the results. As you know, pricing is the biggest value driver, basically, in the industry.

So we will, as I said, offset that, probably by ongoing cost reduction efforts. We’ve been very successful with that in Q1, as I said, not only in the ramp of P7 but also in the other fabs, operational efficiency and cost down has been very good.

P6, I mentioned it in the remarks, also had a very good performance that quarter. But the main driver of this contraction is basically the price erosion.

Okay. On the P8, at this point, when do you anticipate you’re going to make a final decision? And I guess there’s some speculation, obviously, between whether or not you’ll decide to do what they call that super gen 5.5 or whether you’ll do gen 8. Depending on what you choose to do, what do you think the time schedule will be in terms of when this new capacity will come online?

And in terms of what -- the decision-making process right now and why you haven’t come to a final decision, can you help us in understanding what the variables are here in terms of your decision making, what the strategies are and how that influences whether you’ll do a smaller fab versus a much larger next generation fab? Thank you.

Of course. Thanks for the question. Yes. We have, of course, very strongly emphasized the growth in LCD TV and we would like to capitalize on that. We are very well positioned for that. We will, as usual, gear the ramp of the fab and the substrate size choice to what we expect the market for large and wide TVs will do exactly. And I think that just needs a little further timing and decision making for us.

We’ve also indicated that - and I repeated that also during the first remarks - we’d like to grow further in notebook PCs. So we’re focusing on these two.

We have not taken any decision. And I’m saying that to you simply because it’s true. We have not issued any equipment POs or have any approval of the Board of Directors. So when we do so we will, of course, communicate with you. And we expect that to be the case at the next earnings call.

Could you give us a loose timetable, then, just something we can work with in terms of when you would bring this capacity online?

Well, typically you know that it will take 18 to 22 months from the start of construction of a fab to mass production, basically. So generally speaking, that is, I think, the correct dimension. And you also know that we have started construction in December, end of December.

Alright. Thank you very much, Ron.

Yes.

The following question will be given by Mr. Andrew Root from OTA Asset Management. Please go ahead, sir.

Thank you very much for taking my question. What was the average size of TV panels in the first quarter, and how does that compare to the fourth quarter?

Okay. So you mean our sales -- the size for the TV. We said, of course -- in the industry I think the 20 to 26 inch was the main size in Q4, and it’s moving towards the 32 and 26 and 32 size. And also the demand for the 37 inches in the States and also the other countries are getting very strong, I think.

Thank you. I guess I’m just looking at your TV business, which grew about 10% in revenue terms. Just curious, on an average square-inch or square-meter basis, what the change was first quarter for LPL, for LG Philips.

I’m sorry. I didn’t understand your question. Could you repeat that question, please?

Just looking at your segmented revenue, your TV business grew a little more than 10% in the first quarter over the fourth quarter. What was the average size of your panel sales in the first quarter compared to the fourth quarter?

Okay. Our panel size -- average size, we are -- as you know, we are focusing more for the larger size TV and we are less for the small size. So our average size for the fourth quarter was a little bit -- slightly increased. We are increasing more 32 and 37 inches, and also the 42 inch is increasing. So our average size in the Q4 was the same as the industry at the 22 to 26 inches, and is getting to the larger [30] and 32 inches.

Okay. And then finally, on the TV panels, in the June quarter the panels that are shipped for TV units, how much do you expect that to grow in June? You indicated that TV revenue will be up a lot. Is that -- do you know what the units will be shipped to TV makers June over March?

Okay. For the -- we are expecting strong demand for the World Cup event during -- it’s going to start from June 9. And also some strong events from China also, that’s Labor Day, the holiday, and also the 50 year has a special -- some good season for the Chinese for the wedding ceremony. So we expect some growth of TV demand for the -- from China also.

And so total demand, usually the first half and second half is around one-third in first half and two-thirds in the second half. But still this year, still the first half is quite strong and also more strong in the second half. So I cannot figure exactly what is the total quantity, but actually the total demand maybe would be the 45m in total year, and one-third can be in first half and two-thirds can be in second half.

And on the cash -- level of cash that you have, is there an amount where, like if you drop below KRW1 trillion, would you want to raise additional cash or liquidate some inventory? Is there a level you don’t want to go below, or you’re quite comfortable going well below KRW1 trillion?

I think for LPL the level of cash will be somewhere sub KRW1 trillion.

And you’re comfortable with that, given your CapEx and $500b -- KRW500b burn this quarter, or you would want to look to raise capital or liquidate inventory?

Well, we will raise more debt, as we have already indicated. Of course, you will be updated on the possibility of an international bond offering. But there will be no equity issue this year, as I have emphasized on many occasions.

Okay. Thank you very much.

You’re welcome.

The following question will be given by Mr. Dinwoodie from UBS. Please go ahead, sir.

Thank you. Hi, Ron. Just a couple of questions on the inventory for the first quarter. Would you be able to roughly break down how much of that is television and how much is PC? You seem to be very comfortable with that it could actually be strategic.

And the second question, we noticed the SG&A dropped and I think it might have been the first time since Q3 ’04. Could you help us understand what some of the major drivers are in that SG&A that might have come down? Thank you.

Okay. Well, the inventory increase is mostly, I would say, 80 to 90% was TV. We’re ramping up gen 7 and growing larger in the business. So the increase in TV inventories, to a certain extent, is a quite logical consequence. And yes, we have said a little more than three weeks. At this moment we are not concerned with that level of inventory.

We think actually that last year we’ve been running pretty low inventory levels. This inventory level that we quote here is a consolidated global all-inclusive inventory number, everything shipping, in-house and what have you.

On your second question, on SG&A, we have - and that is also something I indicated, maybe I should emphasize a little more - we have decided to ship more by vessel than by air. Air freighting large-size TVs is very uneconomic. So we have brought that down last quarter. We had to do a fair bit there, as customer demand was very high and strong.

We have done now more vessel shipments. That has also led to a slight increase in the inventory, in the lead time. And as a result of that, in SG&A we have actually saved a fair bit on transportation expenses.

Thank you. Thanks.

The following question will be given by Mr. JJ Park from JP Morgan. Please go ahead, sir.

Okay. Thanks for the presentation. I have a few questions on the Q4 results. You mentioned cost per square meter came down by 2% compared to the previous quarter. But I’m just looking at your Q4 result presentation. It seems to me that actually cost per square meter actually went up by 2% compared to the last quarter.

Yes, that is right. I thought that we had said that also in the -- under the income statement.

Okay. So that’s a typo in the first-quarter presentation material?

Well, we have two things. We have the cost of goods as a total amount and we have the cost of goods per square meter in dollars.

Yes, I’m talking about the square-meter basis, cost of goods sold.

Yes. Per square meter in U.S. dollars - is that what you’re talking about?

Yes. That’s actually -- it went up or came down?

It went up.

Okay. It went up by 2% from the previous quarter?

It went up 5% Q on Q.

Okay. The second question was the depreciation expense. Looking at the first quarter, this should increase in the depreciation expense. I suspect it is mainly driven by the gen -- P7 ramp up. Do we expect that the level of the depreciation expense going forward or --?

Yes. Of the KRW628b depreciation, KRW107b was for P7. And that will increase because we’re increasing more capacity, we are ramping more lines. And I said in the last quarter that 1.7 trillion total company depreciation last year, 2005, will this year increase by approximately 50%.

Okay. Thank you.

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

Hi. I just want to follow up the margin contraction question. You just mentioned the major factors of the margin contraction is due to the price erosions in the second quarter, about like a mid to high-single-digit decline. If you -- if we look at the first quarter, you actually got about 8% ASP decline and the shipments actually contracted about 5%.

And in the second quarter, assuming you’ve got about a similar price erosion of the first quarter and you have a higher output, about like a 25% plus output increase in the second quarter, how come the first quarter you can have about 27% EBITDA margin, but the second quarter you’ve got a lower -- much lower EBITDA margin, almost like only 20%. Is something actually missing here?

No, no. Actually you’re right. But what we have actually seen, maybe I can clarify that better for you. In January, actually our ASP on a square-meter basis went up as we increased substantially the level of 42-inch production. All right? And, as I’ve reported already, the quarter-end to quarter-end cost down -- or sorry, the price down.

In the second quarter, the average price decrease in the quarter will actually be higher, as a result of that, than the quarter-end to quarter-end price erosion because you have a slightly higher average rate in the first quarter. And you’re starting with a run rate level in March that is much lower than that. That’s what you move into the second quarter.

Yes? So, simply put, or simply again restated, the average price erosion in Q2 will be higher than the quarter-end to quarter-end price erosion. I think that’s maybe the missing part.

Okay. And how does that [inaudible] roughly will be?

Well, we’ve guided for mid to high teens -- sorry, mid to high-single-digit price quarter end to quarter end. I think the average will be actually high single digit. More close to 10%, I guess.

Okay. Thank you.

The following question will be given by Mr. [Chong Hao Ong] from JL Capital. Please go ahead, sir.

Hi. Hi, Ron. Just follow up on the inventory side. Could you let me know the TV, how much is 32 inch or larger?

Well, we don’t really break that down. I said that the main increase for the inventory was due to TV. That had to do with the new fab ramping and 42 inch. So that’s 42 inch in there, but also 37, and 32 increased a bit.

Right. You can’t tell us like how many percent of that inventory is 32 inch and above?

No.

Okay. Your shipment for 1Q in meter square is actually down 5% Q on Q, while you ramped up your P7. I don’t quite understand why the shipment in meter square is actually down Q on Q. Is it because of mix change or is it because it went to inventory?

Well, the mix change is also there because TV is much higher in the mix at this moment. And TV also, I said, grew on a square-meter basis by a little more than 20%. So the rest came down, mainly monitors and notebooks. That is the reason and that was due to more than expected seasonality.

Okay. So the down 5 percent Q on Q is because of the [inaudible] is it? You know what I am trying to say? When you shift to TVs, more to TVs? Is that what you are ramping up P7?

That is correct. But the monitor and notebook segments were much weaker than we expected, and there lies the main answer per square meter down.

Okay. My last question, I just want to understand what happened in 1Q, because back in January you were saying the EBITDA margin would be 20%, and then second Q would actually go up. And then now what we see is actually your 1Q EBITDA margin is 27% and then 2Q is going to go down to 20%. What happened in between these few months that your forecast is the other way round?

Yes. That’s a very good question and I will try to answer that for you. Basically, two things. The gen 7 line has ramped much better. That is not so much so in capacity, because I just quoted you a number of 1,600 average input sheets per month for the first quarter, which is basically in line with what we communicated before. But the capacity conversion factor in P7 was better than expected; thereby we have saved a lot on material expenses. So the depreciation was there because that is very predictable, but we have saved a lot in the material -- that material cost through a better capacity conversion factor.

Now, also in the other fabs, in P6, as you know, as we communicated, we have produced some 42 inch panels last year that was not very economic. And we limited that, but for strategic needs we have done so, we have explained that. So that is basically all of it, and that improved P6 performance also.

And then, of course, we have the ongoing cost down through value engineering, through design, as we say, meaning we are trying to simplify things and get less components and less expensive components in. That was very good. And we have also pushed quite hard on cost innovation in this quarter -- sorry, in the last quarter, Q1 that is.

Now, we have already gotten a lot of the benefits there of P7 versus the expectation. That means that the improvement potential in Q2, although it will improve, is going to be less than we earlier anticipated because the cost benefits came one quarter earlier, were much better. But the price erosion that I just guided for is more or less very close to Q1. So that means, as I tried to explain in the previous question, that the EBITDA margin actually is coming down to approximately 20%.

Right. Because in January you were guiding that you will actually be higher than 20%, right, for 2Q, because 2Q is supposed to -- 1Q is supposed to bottom at 20% and then 2Q is supposed to be higher than 20% because it’s supposed to rebound. But now you are saying 20%. So there must be some variable that you guesstimated wrongly in January. Was that the ASP coming down more than you estimated in January?

Yes. So actually, at the time we gave you the guidance on our best assumptions, including gen 7. And okay, maybe we have been somewhat on the careful side, but certainly not over careful in our expectations. We had also, as you know, the ramp of the gen 6 with some equipment issues. So we communicated actually the right number, we felt.

Now, as I already explained to you in the previous part of your question, costs in our other fabs was also much better than expected.

Right. No, I’m focusing on the 2Q now, sorry.

Yes, yes. But I’m trying to start with Q1 first because you had a remark on that. I’m trying to clarify it for you.

Okay.

And then the ASP came down also more in these than we expected, but the offset was bigger.

Now, we have not given last quarter specific guidance for Q2, as you well recall, but we have said that we would expect a sequential improvement. And as we now have had the benefit of a 27% EBITDA margin instead of high teens we, as I said before, have less potential to improve in the second quarter. Yes?

Okay. All right. Thanks a lot, Ron.

Okay.

Thank you.

The following questions will be given by Mr. Bezler from Rabo Securities. Please go ahead, sir.

Good afternoon. Niels de Zwart, Rabo Securities. First question is on your EBITDA margin. The previous conference call you have guided to a sustainable level of between 25 and 30%. Is that still a longer-term target you would be looking for?

Yes. That is still the case. And in the first quarter we actually did quite good on it, 27%. And at previous earnings events I have communicated that we expect to be at the level, or close to the level, that we were in the last year end, in Q4. That was 28%. So, we are going to do our best to get more close to that area.

Okay. Thank you. And my second question regards to the tax line in your P&L. Could you maybe give us some guidance for the following quarters and maybe for the full year?

Actually, we give specific guidance on the elements of square meter shipments, pricing and EBITDA for one quarter ahead. We do expect in the second half that pricing will stabilize. It’s not very clear at this moment when exactly that is going to be. So, pricing should improve and it will mainly be on the PC side. TV pricing probably will come down less, because the season, as Bock already indicated in an earlier question, the season is much stronger in the second half, we feel.

And then, yes, back to your first question, we continue to think that 25 to 30% EBITDA margin would be a sustainable level in this industry.

Okay. Thank you very much.

All right.

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

Hi. Good evening, Ron. Just back in January I think you said that you were meeting about 80% of the total TV panel orders that you received. And given that inventory’s actually gone up in Q1 to about three weeks, I was wondering if that TV panel demand has come down.

And, of course, a related question to that is has actually the World Cup demand been weaker than you had expected up to this point in time?

Okay. During the Q1, when we’re talking about the TV demand during Q1, every customer today are forecasting that they want to buy more panel for the World Cup -- during World Cup event. But actually when price down -- they saw the price down, so they hold their procurement they are buying. And then they hold and then they postpone their buying to the Q2. So, at this moment we see a very strong demand from our -- the major customers. And based on that we calculated our -- the shipment growth will be as we guided.

Okay. Then, just going back to the inventory in your balance sheet, would you expect to be -- your inventory in the balance sheet to be lower at the end of Q2 compared to the Q1, or will it be up or will it be like -- be held steady at about three weeks?

Well, we think that the current level -- we don’t think we will go much above that at the end of Q2.

Okay. And then a last question is, if you look at your customers, you said earlier that your customers held back on procuring TV panels after seeing that prices are falling. Would it be implied that they are having a very, very lean inventory right now? Is it just across the world in LCD TV finished sets as well as in panels?

Okay. Channel inventories are quite similar to Q4, and maybe slightly the high, as their sales -- they forecasted maybe a bit strong the sales, even they had some inventory carried over from Q4 last year. But actually the sales was not so good as they expected. So, channel inventory slightly higher than before.

Okay. Thank you very much.

Thank you.

Currently there are no participants with questions. [OPERATOR INSTRUCTIONS]. The next question will be given by Mr. Frank Lee from Deutsche Bank. Please go ahead, sir. Okay. The next question will be given by Mr. [inaudible] from ABN Amro. Please go ahead, sir.

It’s [Aba Jett] from ABN. I’m just wondering upon that last question. You just said that channel inventories are running high on the TV space. What then gives you visibility for this guidance of 50% growth in TV shipments quarter on quarter in the second quarter?

And secondly, you seem to be carrying a fairly high inventory of almost $1b. If TV panel sales still continue to come down, you would obviously take an inventory write-down risk. Have you factored that into your assumptions already?

Okay. During Q2, TV will be -- grow maybe. As I mentioned to you, demand will be very strong and so we expect the inventory maybe the -- will be down for the TV. But for the TV, as Ron explained before, we’ve started to ship by sea, so in order to reduce the logistic cost.

So, that’s actually the -- even now holding inventory just slimmer than before, but still the on board -- including on board, so that our inventory can be quite maintaining the same level as Q1.

Okay. Can you give us a feel of how much of inventory is in transit inventory and, therefore, has been already committed to buyers? And how much, basically, of this 22 -- 20-odd-percent growth in shipments is already pre-committed?

Okay. The 20% of growth is maybe, as I mentioned already, that’s based on our customers’ forecasts during Q2. So, we expect maybe everything going well during the World Cup event. And every customers are preparing -- are raising promotion for the World Cup event. They’re doing some activities in the sales floors. So, we expect they will carry on that -- all the other forecast during the Q2.

Okay. And if you can just answer the question about $1b of inventory if you’re looking at 7 to 8% price declines. Is the inventory write-down to your forecast already?

Yes. We have this, of course, always in our accounts on inventories. We have an inventory write-down policy that starts with about three months and then the next bracket is six months. So, we take a month.

You’re right; inventory increases could mean that. But please bear in mind that the demand level will also -- is also at a higher stage. So, it’s not so that those inventories should be linked to demand that was in the first quarter, the inventory. And that’s why more or less a little more than three weeks than we said is geared to the second quarter and beyond. So, we don’t expect a very big impact from that.

Thank you.

Okay. The following question will be given by Mr. Brian from Darby Capital. Please go ahead, sir.

Hi. It looks like your tax credit increased substantially sequentially, and it was actually a pretty big contributor to your reported net income. Could you please help us think about how to forecast the tax credit or tax expense going forward, please?

Yes. Our tax credit is partly due to the -- or the low tax credit is [part of the fund] invested part of the Company by basically Philips Electronics, 33%. And also results are lower because the tax pressure diminishes, and we have quite some investment tax credit that we get on ongoing CapEx. That’s an investment support that the Korean government gives. So, those three factors have always made our tax burden quite low.

How would you think about forecasting tax for the next few quarters at least then, considering all those factors?

Well, assuming that things stay more or less the same in the development of the expectation on dispersing capital expenditures, then we think that the tax rate throughout the year will not go over 10 to 12%.

So, you’ve gone from a credit in Q1 to actually paying taxes in the second part of the year?

Yes, as we expect to make more profit.

Yes. Thank you.

Yes.

Okay. The following question will be given by Mr. Chong Hao Ong from JL Capital. Please go ahead, sir.

Hi. Sorry, just a quick clarification. I understand that the inventory went up because the ASP went down and the channel guys just postponed their purchase. From what I understand, is that from your panel shipments to the end product, to the inventory, i.e. into the channel, it takes three months. Is that still valid?

Well, you mean the -- from our production to the -- actually the consumer?

The TV that has been sold, yes.

It should take three months?

Yes.

Well, that depends on before we ship most of the shipments by air, but now we change it to sea, a lot of portion, to reduce our -- the logistic cost. And then maybe take a little bit longer but still on -- in that range, yes.

Right. In that case, whatever you ship today is not going to reach the consumer for World Cup, right?

Yes.

Okay. All right. So, when you say they delay their purchase because the ASP is coming down, they’re not delaying it for World Cup any more, right?

Right. Yes.

Okay. Thank you.

Okay. You’re welcome.

Currently there are no participants with questions. [OPERATOR INSTRUCTIONS]. Okay. The following question will be given by Mr. Frank Lee from Deutsche Bank. Please go ahead, sir.

Hi. Thank you, guys. I just had a question about your unit growth assumptions for the second quarter. You’re looking at 25 or 30% surface area growth, which seems to be quite strong. Can you give us a direction in terms of perhaps all three applications seeing strong growth as well? I know you’ve mentioned the TV panel side expecting 50% growth, but what about the notebook and monitor side?

Okay. As we told you already, our TV unit growth around -- over 50%. And for the monitors, as we are trying to [review] -- not trying to increase for the low-end monitors and we are trying to increase the wide-end, high-end monitors. And for the notebooks we are expecting increasing also the -- significantly. Let’s say it’s expanding a lot for the wider notebooks, which we are optimizing as we are focusing also.

Okay. And on the monitor side?

The monitor side will be -- our shipping growth will be almost the same or slightly grow.

Okay. And regarding your comment on the TV side, 50% seems to be quite strong in terms of quarter on quarter. Would you say this is -- would be above what you expect the overall market to be? And if that’s the case, is it a function of customer mix or product mix?

Yes. Definitely it will be above the industry growth, which we are growing more for the 37 inches than 42 inches. That is as we mentioned, because of the product mix. It’s shifting more 37 inches than 42 inches.

Okay. And I guess one part of the question is that you mentioned earlier part of your inventory build in the first quarter was because of a delay in procurement managers, because they see the decline in pricing. But we’re also looking for a similar price decline in Q2, if not possibly more. Could you -- is it possible that the same behavior could repeat itself in the second quarter?

But actually we expect good sales during the World Cup event and also in the -- from the Labor holidays and from the wedding season in China. So, there maybe it’s time to buy now, otherwise they will miss their sales event.

Okay. When you mean the drivers, it’ll be the World Cup and what other areas? But earlier you said that actually if you deliver in Q2 now for panels, would you still be able to make it for the World Cup?

Yes. From the -- we are starting shipping from beginning of this month.

Okay. And that would still be in time for the World Cup?

Right.

Okay. And I guess my last question is based on your EBITDA margin forecast of 20%, it’s about 7% contraction in EBITDA margin. Given your operating margin’s only about 2% in the first quarter, is it possible to assume that we could see some potential operating losses in the second quarter?

Yes. Well, we guided for approximately 20% EBITDA margin, so with a depreciation level of 20-around-percent, 20-ish. Yes? That’s about breakeven -- around breakeven, I would say.

Okay. Thank you.

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

Hi, Ron. In the few minutes we have left, just trying to take advantage of that. Just maybe more of a long-term question, going -- thinking about maybe the second half and maybe how this time around the industry and its behavior may have changed. Do you get any sense from your marketing people or from just internally that maybe panel makers are not as mercenary as they may have been in the past in terms of raising prices, as maybe they may have done in the past just opportunistically? Is that something we’re seeing? And if so, what do you think is potentially driving that change in behavior?

And the other thing is, looking at your capacity in one of the charts in your presentation, it’s very clear that outside of P7 you don’t really have any capacity growth. Right? All of the other parts of the bars look pretty much the same. So, in other words, it looks like your notebook and your monitor capacity, presuming that you’re not going to be making 17 or 15 or 14 inch notebook panels at P7, that’s just not growing into the second half of the year, and you are one of the biggest producers.

What do you think that then means in terms of supply and demand for the PC-related products into the second half and then, of course, one half of 2007?

Okay. Thanks for the questions. I don’t know exactly what mercenary means.

It’s a good thing, Ron. I’d like to see more of it, to be honest with you.

Okay. We have indeed indicated that we see this irrational behavior diminishing on both sides, I would say. So, we have already seen basically in the last year that, unlike in 2004, suppliers have not increased very strongly the pricing. I think the industry collectively learned a lesson.

On the back of that, also the downside seems to be, although Q1 we just explained to you was quite strong, high -- or 10% quarter end to quarter end. And we think that is still not what we have seen in the past. And as we have earlier indicated, we think the TV business -- the growing TV segment will bring more price stability, because TV has longer pricing cycles and other reasons why that is -- that will be the case.

Now, on the downside, it doesn’t seem to be a good strategy any more for second and third tier players to go below cash cost. If you want to stay in this game, you have to try to generate cash. And that’s why we have also explained to you in the previous quarter [with a] very strong EBITDA growth from a level of 2.2 trillion in the last year with the strong increased depreciation, increase that I also guided for.

So, those reasons make it probably that people are not going to swing so much up and down any more. Of course, in the second half - that relates also to your second question - we will see more tightness, mainly in the PC segment. And you are right in your observation about capacity growth. Although we do our best to bring the gen 6 line with increasing level of input sheet capacity, we’re working on that.

What I’ve also said is that, in our decision making on P8, which is not finalized, we’re still considering, we will also look at the fact that LG Philips LCD wants to grow in notebook monitors. So, going forward, that capacity for notebooks will probably also -- will increase.

So, I don’t think there will be very huge [inaudible]. Although what we have seen, as I said to you in the prepared remarks, is that last quarter, before we started to maybe switch out a bit, and we have certainly done that at low-end monitor segment. And they’re going to TVs, but in the absence of a decent TV infrastructure in terms of fabs and customers, there is no other place to go than notebooks. Hence, we see the strongest price erosion occur there.

But the capacity for notebooks we will bring it -- we will keep it in line with our growth ambitions.

Okay. One last thing, did I hear you give a guidance in terms of the individual product shipments into the second quarter? You said plus 50% for TVs and I believe one of your colleagues said flat, maybe slightly up for monitors. Did you give a guidance for notebooks as well?

Actually, we think, besides the 50% increase for TV, the PC side will also increase in square meters.

Do you have a figure that you’re willing to share?

Well, it will not be 50%, if that’s what you’re asking.

Yes.

But there will be some growth. I think, together with the shipment guidance we gave and the part of TV in our business, it’s not difficult to get an indication of that.

All right. Thank you.

All right.

Okay. The following question will be given by Mr. Jae Lee from Daiwa Securities. Please go ahead, sir.

Yes. Although you gave us a TV guidance for the global market at about 45m units, and about one-third would be falling in the first half and about two-thirds will be falling in the second half, how about your own shipments for the TVs? Would it be the similar ratio?

Yes. It would be -- it did follow a similar ratio, let’s say 35, 40 in the first half and 65, 60 in the second half.

Right. And what kind of market share are you looking for this year for the TV side?

Okay. For the TV, essentially we are looking for around 23%.

23%?

Yes.

Okay. Thank you very much.

Thank you.

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

Hi. I wanted to find out if you can maybe make some comment about the profitability of the TV business from Q4 to Q1, and also from Q1 to Q2, if it differs significantly from the overall [firm] trend?

And the second question is you’ve said that you’re starting to ship for World Cup demand starting from early April. I wanted to know when is the latest you have to ship to make the World Cup demand. Thank you.

Okay. Bock, maybe you can start with the second question?

Okay. Before the World Cup, the event, maybe that’s -- but still we are [ready] to ship by sea, so we can -- started already from beginning of this month. And they’ll be shipped during this month and we can reach it for the World Cup event. And in the meantime, maybe there are some customers they would like to send -- ship by air during the beginning or maybe first part of May.

Okay. And on your first question, we are -- the operating profitability in all segments is positive in the Company. And, of course, TV has been a bit under pressure from the gen 7 ramp. But, as I’ve said, we expect that to improve.

Thank you.

Yes.

So, the final question will be given by Mr. Luke Szymczak from JP Morgan. Please go ahead, sir.

Yes. Hello. Thank you. I was just curious about -- I might have missed this, but could you help me think about the -- how to think about the -- your inventories over the course of the year? In other words, given the shipment growth you’re forecasting for Q2, would we expect inventories -- your inventory balance to be flat or even down in Q2 and how should it play out over the course of the year? Thank you.

Yes. We expect our inventory to be about the same in the second quarter. And it’s going to diminish as we go on in the second half.

Our inventory policy actually is anything that would go above five weeks we would start to temporize production. Of course, ahead of those five weeks occurring, if we have that view. Right now, we don’t have that view. So, things seem to be okay and we’ll very carefully watch the inventory development. And, as Daniel just said, the inventory level would remain relatively flat, maybe slightly up at the end of the second quarter. Yes?

And we might -- we will take a last question. Okay. If there is no more questions, then thank you very much. And if you have more questions, well, you can always call on us. Thank you.