LG Display Co Ltd (LPL) 2006 Q4 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 fourth 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 fourth quarter earnings results by LG PHILIPS LCD. Please go ahead, sir.

Thank you. Welcome to LG PHILIPS LCD's fourth quarter 2006 conference call. My name is Daniel Kim and I'm the 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 our CFO, Ron Wirahadiraksa, the Vice President of TV Sales, Champ Shin and Vice President of Monitor Sales, C.S. Chung.

We have approximately one hour for this call. We'll spend the first part of the call discussing the key issues for the quarter, which correspond to the slides available on our website. Following this, we'll take your questions. Please do not hesitate to contact us after the call if you have further questions.

Before we move 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 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 fourth 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 publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. Now please take a minute to read the disclaimer.

We are reporting in consolidated Korean GAAP, with an appendix to this presentation that includes our reconciled U.S. GAAP numbers. I would now like to turn this call over to Ron.

Thank you Daniel. Ladies and gentlemen welcome to our fourth quarter 2006 global conference call. During the next hour I will review our earnings results from the fourth quarter, discuss our performance and conclude with the outlook for the first quarter of 2007. Following this we will take your questions. Next slide please.

Before we get into the specifics of the quarter I would like to address two issues; one that involves our Company specifically and the other that involves the entire LCD industry. On December 18, the Company announced several executive management changes, most notably that Young Soo Kwon, formerly President and CFO of LG Electronics has been nominated by the Company's Board of Directors to serve as our next CEO. Mr. Kwon's Directorship will be voted on by our shareholders at our Annual General Meeting and then his appointment as CEO will be put before our Board of Directors for approval following the meeting.

We have also appointed a new Chief Production Officer and a new Chief Technology Officer. Through these appointments LG PHILIPS LCD is transforming itself from a manufacturing centered to a customer centered organization. As you are aware, we recently announced our Value Over Volume strategy and re-organized the Company into several business units in order to swiftly and pro-actively respond to changes in the business environment as well as to customer needs.

By emphasizing the responsibility and authority of these business units, whilst solidifying the Company's global management capabilities, LG PHILIPS LCD's new management appointments affirm our adherence to this profit-oriented business strategy. I'm personally looking forward to working with these executives.

And as all of you are aware by now, on December 8, as part of an investigation into possible anti-competitive conduct in the LCD industry, officials from the Korean Fair Trade Commission visited our offices in Seoul, Korea. In addition, the Japanese Fair Trade Commission issued a notice to our offices in Tokyo, Japan and the United States Department of Justice issued a subpoena to our offices in San Jose, California.

We take this matter very seriously and will fully cooperate with all legal and regulatory authorities. As we said at the time, while these investigations are underway, we will continue to work diligently with our customers to provide world-class products. At this time we have no additional information to provide and will not comment on this further until it is appropriate to do so. Next slide please.

We're encouraged by our performance this quarter and the results of the enhanced cost reduction initiatives we are implementing. We will continue applying strategies that will enable us to reduce costs, manage finished goods inventory levels, better align with customers and support a prudent capital spending strategy.

During the fourth quarter we were able to reduce our COGS per square meter in Korean won by 10% sequentially. In addition, we maintained finished goods inventory levels at slightly under three weeks at the end of the quarter. Temporization is an option if required. Also during the quarter we worked closely with our top customers to achieve better customer alignment.

Activities we initiated this past quarter are progressing as planned and include co-design and co-location with our customers. Production at our Poland Module plants which we established in partnership with Toshiba, for example, will start in February. Further, the increasing number of long term supply agreements we have secured, reflect our continued focus on closer customer collaboration as we head into a challenging market environment in 2007.

We believe that our CapEx plans are aligned with the current realities of the market, although our 2007 CapEx plan of KRW1 trillion represents a considerable reduction in CapEx from the previous year. Input capacity is expected to grow through smart investment in the productivity of our existing FABs and the efficient balancing of our production lines. Although the road ahead will not be easy, we believe we have made considerable progress and expect even greater success going forward. Ultimately, we plan to re-establish our leading position in this industry.

For the fourth quarter revenue was KRW3.1 trillion, up 11% sequentially from the third quarter. This sequential sales increase was largely the result of greater seasonal demand across all segments and improving market conditions, particularly in IT. Total cost of goods sold increased 2% quarter-on-quarter to KRW3.1 trillion, primarily attributable to increased shipment levels.

COGS per square meter in U.S. dollars decreased by 9% quarter-on-quarter and decreased 18% year-on-year. In Korean won this represents a decrease of 10% and 26% respectively. Cash COGS per square meter in U.S. dollars decreased by 11% sequentially and decreased 21% year-on-year. In Korean won this represents a decrease of 12% and 28% respectively.

Quarter-on-quarter our EBITDA margin increased by 7 percentage points to 18% and net margin improved by 6 percentage points to minus 6%. Better than guided margins were the result of considerable progress in cost reductions.

In terms of cost reduction management we're designing for cost whilst pursuing technology and efficiency improvements. LG PHILIPS LCD is also sourcing for costs through [verulium] purchasing and establishing strategic alliances with an emphasis on co-design. We are continuing to execute on our strategy to reduce costs and expect this to moderate further price erosion in the quarters ahead. Please turn to the next slide.

As of December 31, 2006 we reported KRW954b in cash and cash equivalents which represents a KRW482b increase over the previous quarter. This reflects our improvement in net income and the net change in working capital.

Finished goods inventory turnover levels increased from just over two weeks at the end of the third quarter to slightly under three weeks at the end of the fourth quarter for large panels. This change consisted of an increase from just under two weeks to slightly under three weeks for IT, and a slight increase of over three weeks for TV. Again, we are keeping close tabs on this aspect of our business and will continue working to maintain appropriate levels going forward.

Total debt decreased by KRW0.4 trillion to KRW4.1 trillion, primarily due to efficient CapEx and working capital management. Our debt net to equity ratio as of December 31 was 46%. Please turn to the next slide.

Cash flow from operations increased to KRW1.2 trillion, mainly due to the improvement of net income and change in working capital. CapEx spending of KRW324b was below our third quarter CapEx amount and consisted primarily of investments in Gen 5.5 construction, our Poland Module plant, the enhancement of production efficiency and the maintenance of existing facilities.

As we have previously communicated, our Company has focused attention on capital spending policies and practices which we believe current market conditions necessitate. Our CapEx strategies are part of our larger business objective aimed at returning LG PHILIPS LCD to operational excellence and profitability. Please turn to the next slide.

Now I would like to provide more detail about several specific performance metrics. Next slide please. The average selling price per square meter of net display area shipped in the fourth quarter decreased at the rate of 1% to $1,414. Quarter-end to quarter-end prices per square meter decreased 3% to $1,381. Please note that although prices in the IT segment were relatively stable last quarter, the overall decline in ASP is attributable to the drop in LCD TV panel prices.

ASP per square meter for the fourth quarter in the TV segment fell 4% on average and 5% quarter-on-quarter end. For IT, ASP per square meter rose 3% on average, and fell 2% at the end of the quarter. The total display area shipped during the fourth quarter 2006 was 2.3m square meters; an increase of 14% sequentially. The less than expected increase stems from lower than anticipated seasonal demand in the TV segment. Next slide.

Revenue breakdown by product segment for the fourth quarter is as follows. TV held at the same level as in the third quarter, accounting for 48% of total revenue. This was followed by Monitors at 27%, Notebooks at 21% and Other Applications at 4%. Next slide.

P7 continues to perform efficiently and averaged 78,000 input sheets per month during the fourth quarter. Bearing capacity and future outlook in mind, we plan to ramp P7 towards 90,000 input sheets per month in the first half of 2007, in line with the demands of the current market environment. Next slide.

Cash ROIC in the fourth quarter rose from the third quarter by 11 percentage points to 23%. This stems from our improved EBITDA margin, as well as an increase of sales over invested capital. Next slide.

Let's now turn to the discussion of our outlook. Next slide please. For the first quarter of 2007 we anticipate a mid-single digit decrease percentage in total area shipments sequentially, where TV decreases by a high teens and IT increases by mid-single digit percentage. We anticipate both the ASP per square meter at the end of the first quarter of 2007, as well as the average ASP during the quarter, to decline by a low-teens percentage, which is the same for TV and IT.

Our COGS reduction per square meter is expected to a mid-single digit percentage in the first quarter. Accordingly, our EBITDA margin for the first quarter of 2007 is expected to be a mid-teens percentage.

Looking forward to 2007 we anticipate continued progress in our [cost] reduction efforts and expect that these strategies will reduce costs by about 25 to 30%.

Our CapEx guidance for 2007 remains at approximately KRW1 trillion. Our 2007 CapEx will be utilized for future production facilities, production efficiency enhancement and existing facility maintenance, thereby, providing us with more operational flexibility. This is in accordance with our more judicious approach to capital spending and in anticipation of the industry-wide weakness in the first half of the year.

Responding to the needs of our customers, and the rapidly evolving global business environment, remains a key focus of LG PHILIPS LCD. We believe our strategy is strong and that the new leadership team announced in late December will further enhance the Company's global standing and business capabilities. We are encouraged by the progress we made during the fourth quarter. The coming year represents both an interesting challenge and unparalleled opportunity as we work to return to profitability.

Thank you for your ongoing support to LG PHILIPS LCD. Daniel.

This concludes our fourth quarter 2006 earnings presentation and we would like to now answer your questions.

[OPERATOR INSTRUCTIONS]. The first question will be given by Mr. Vijay Mewes from Lehman Brothers. Please go ahead sir.

Yes, good evening, a couple of quick questions. I guess first off, it looks like roughly 55% of your CapEx is for next gen production facilities. Can you help us out there? Is that primarily Gen 5.5 or also additional initial spending on Gen 8?

We have been spending on construction of P8 and that is a Gen 5.5 but that occupies part of the building. So at this moment the construction, the shell, for a possible Gen 8 is ready, but we're not spending any money on Gen 8 beyond that.

Okay. And when do you think you would be ready to make the decision as to whether you'd want to add equipment this year or not?

For Gen 8 that's not at this moment on the horizon because, economically, we don't believe Gen 8 is a good idea and the market doesn't seem to necessitate a large volume supply of 50 inch and above. And the economics, as I said, are not good. And for Gen 5.5 we will probably be bringing equipment Q1, Q2 next year.

Will there be any sort of penalty to you, or any problem in terms of ascertaining that equipment, given that a number of PO's were placed last year? And any delay there, will that cause a problem to you?

It will not. We have had sufficient discussion with our equipment vendors. As you know, we have long standing relationships with [an actual] understanding, so we're keeping the slots. So we don't expect to have any glitch in supply of equipment to us.

Got you. And moving on to the COGS down effort, you talked about 25/30% COGS down year-over-year. Do you see that primarily in materials? You also talk about co-design, also bringing production in-house and also focus on manufacturing in yields. Where do you see the lion's share of the savings coming from?

If I compare the comparable bill of materials in '07 against price [in] '06 then I can say that most of it will come from purchasing and the second is development. And also a fair bit will come from process improvement. And process improvement, as you know, we'll have a whole year of P7 ramping up in a higher capacity mode and also with a higher capacity convergent factor than in 2006.

Great, thank you.

You're welcome.

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

Yes, I would like to know the overall capacity increase for 2007 and also your TV market assumption for this year as well?

So, overall, the TV market -- TV demand in the year-over-year 2007, the most of research Company and then TV makers are expecting about 66m to 68m units. That is the TV set demand. So, also we have similar numbers currently so they are probably -- the penetration rate for out of total TV market will be more than 30%. That's what we are expecting as of today.

And as for capacity expansion it's about little more than 30%.

Right. How about the TV shipment breakdown during the fourth quarter? Could you do that by like volume and value for like the 30 inches and 40 inch displays?

So, fourth quarter it was about 35% larger than 40 inches, and then approximately 50% 30 something inches; 32 and 37 inches. And the other portion is smaller sizes.

Okay. Thank you very much.

You're welcome.

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

I have a question on your depreciation target going into the rest of the year. I think you had mentioned in the previous call that one of your Gen 5 facilities was stopped -- your depreciation stopped some time in the year. Can you tell us when, which quarter and the amount of depreciation you think will start to decline?

Yes. So the total depreciation for this year is about 2.7 -- about KRW2.7 trillion and the Gen 5 will mostly run out of depreciation starting in Q2. As you know, we're ramping FABs usually in the nine to 12 months, so in the coming quarters also the amount will come down a little bit more.

So, is there any way you could give us a little more specificity on the number or what the Gen 5 depreciation charges have been historically?

Yes. So, in last year, Gen 5 was about KRW350b and this year that will be about half.

About half of that. And one last question. Do you have any plans at this moment for another equity issuance?

No, we have no plans at this moment.

Thank you.

You're very welcome.

The following question will be given by Mr. Evan Erlanson from Bear Stearns. Please go ahead, sir.

Yes, thank you guys. I saw that the 7.5G FAB was running at 78,000 input sheets by the end of the year. So what does that mean in terms of ramping up to the 90,000 input capacity, in terms of timing Q1 or Q2?

Actually, the 78,000 was the average for the quarter, but at the end of the month it was lower. So the 90,000, as I said, we'll let that depend on market circumstances. The thoughts are now for that to be end of Q2.

Okay. And in terms of the CapEx and the timing that we can expect for 2007, is it going to be front-end loaded, back-end loaded?

Yes, it's a little bit front-end loaded for this year. And that is because we are still executing on orders that we have placed for which we are paying and some part that we have on credit at the end of this -- sorry, at the end of last year. So, yes, it is mostly front-end loaded first half.

Okay. And finally, on the capacity conversion factor, given the slowdown that we expect in Q1, there was a little bit of a decline in Q4. How do you think that's going to trend through the first couple of quarters of the year?

Well, we should see an improvement because the P7 is still getting [ongoingly] better in [CCF]. So we will see that probably go up throughout the quarters in '07, because we're not ramping any new FABs so there's no reason why the productivity, as indicated by CCF, would not improve. I am looking at, if you hold on one second. [Inaudible] where's the CCF? Oh here. So, at the end of -- in Q4-over-Q4, it was a little under 65% and we expect to bring that up I think throughout the year to -- it should be going over 70% in Q4 of this year.

Okay, great. Thanks.

You're welcome.

The following question will be given by Mr. Tony Sander from HSBC. Please go ahead, sir.

Yes, thanks everyone for taking my questions. A couple of questions here. First, just want to talk about this CapEx and your comment that current market conditions don't dictate a higher CapEx. But the CapEx number covers the whole of 2007 and so -- and the amount of time it takes for CapEx to actually have an impact on capacity. So what you're saying, in essence, is that until the middle of '08 you don't see any requirement for any -- in the industry for a large amount of new capacity?

No, what I'm saying is, and what I said before, that the Gen 8 at this moment for us is not economically feasible. I've said it a few times, not only this time, I mean, but before. And the market for 50 inch is probably not that big, but we are building a Gen 5.5. And this year's capacity expansion comes from higher input sheets, mainly in P7, and increased capacity convergent factor. So we intend to squeeze more out of our factories because this is the first time that you heard me talk about CCF that we're targeting above 70%.

Right.

So we're doing our best to optimize the agreement as much as possible and be as productive as possible.

Okay. So demand -- some of your competitors said like demand is going to grow at area times 40%. Your capacity is up 25, 30% so you're quite comfortable letting the industry carry the burden for 2007? And you're quite happy to -- with your Value Over Volume strategy for this year?

We need to focus on value more than volume. So I think this is also driven by prudency and we'd like to retain a strong balance sheet to have options to choose from if the times get tougher. I don't know, market demand, maybe, Champ do you want to comment more [OVS]?

Area base on the total market demand may grow by about 40%, so our capacity will also grow more than 30%. So, even though our CapEx seems to be relatively smaller than the other years, to fulfill that demand we do not think there are any issues through the year.

Sorry, before -- because you referred to the capacity that I would add before that, it was not 25% to 30%, that was over 30% capacity growth. But, because we're also being more productive, shipment growth is more like 50%, so we are there, we think, with enough volume growth.

Alright, okay. You just made a comment that you like to keep a strong balance sheet and so there was a marked improvement in the fourth quarter in terms of cash generation. I saw that inventory came down. What else was in that KRW500b that was contributing to the working capital?

We had sold slightly more of AR receivables than we did in Q3. It's about $200 more and we had some bills that we put on credit in a very natural way, so that helps a lot, plus the inventory improvement.

Okay. So the AR actually went up a little bit. So it was actually mostly inventory and account payables?

No, no, sorry. What I'm saying is we sold more AR going forward.

Okay.

I'm sorry not to make that clear.

Alright. So AR is 200, inventory about 100 and some account payables about another close to 200, [that's 500], okay.

That's about right.

Do you think this is a one-off thing, or do you think we should --you can squeeze a little bit more over there?

We're going in difficult quarter so inventory -- we'll keep a keen eye on inventory. We always said we'll temporize. If it's go to four to five weeks, probably at four weeks we'll start to temporize. It's now a little under three weeks but [if it's] a little over three weeks within that the overall situation. I think the channel and customer inventory looks pretty okay, Champ, so there's not too much concerns there. So probably we're be able, if we have disciplined production, to keep up inventories at the seasonal right level.

Okay, great. And that brings me to my next question on utilization rates. We saw that area shipped for you grew 14%, capacity grew 17% and you also drew down on some inventories. So is it correct to assume that you drop utilization rates in December, or is that a wrong conclusion?

Yes, the utilization dropped slightly, but mainly in P7. As I said, also the loading rate went down, so that is correct.

Okay. And I was trying to clarify that other answer as well, so the capacity -- installed capacity is 90k but you're running at an average of 78k on the 7.5G?

No, the installed capacity is more closer to about 80k.

Okay.

And we're going to bring that to 90k, as I said, somewhere in the second quarter. And if the outlook for second half is very strong we could think of ramping that further.

Okay. So there is some leeway in that CapEx number for second half that means?

No that would be included.

Okay.

There's no -- we don't expect to spend more CapEx other than we anticipated.

Okay. So in December you think this is running around 75k, this FAB?

Yes, around 74, 75k that's right.

And do you think you're going to increase that at all in the first quarter, or that's -- do you actually probably need to decrease it because you're forecasting 5% drop or so in area?

Yes exactly, so we'll try to keep it flattish to a slight reduction. And also we intend to produce more monitors in our Gen 7 line.

Okay. Pricing, you said first quarter a mid-teens drop. Do you want to take a guess on the rest of the year? What do you think, Ron, pricing does gets weaker in the second quarter, and then is there going to be a bounce back later on in the year? What are you thinking?

This is C.S. Chung, I'm in charge of Monitor side. And, as you say, first half is always weak and second half is strong. So, we're expecting in Q1 and Q2 maybe price down around 10%ish, but I think Q3 it's going to be [balanced] and the Q4's going to be tight, so we also expect the price rebounding around Q3 -- from Q3.

Excellent, thank you. Just one last question. I don't want to ask a lot of questions, but this last question is, Ron, for you. You're pursuing this customer orient strategy, you have a JV with Toshiba, you want to provide them the panels that they need, and what happens if they need 52 inch panels and you don't have an 8G? What's your answer to Toshiba then in that case?

Probably, I may answer you.

Yes sir.

Even though we are [not] investing the Gen 8 there but we are developing the 52 inches and then the larger screen size in our previous -- in our current FAB. So to meet the customers' requirement is we do not have any problem. Because we are developing and we have now produced those other screen size models in our previous FAB.

Okay, thank you. Thank you very much for that. Thank you.

Thanks.

The following question will be given by Mr. Chong Kim of CLSA. Please go ahead Sir.

Just a clarification on the Poland Module factory. When did you say that that would begin production?

It will be in production from the end of February, as we have stated.

End of February. And just a follow-up question. From that point in February will you be shipping as -- well, will you be shipping to Toshiba as well? Is that part of the schedule?

According to the customer's requirement, we will provide our product from Poland, according to the customer's requirement. So, in the Poland factory, it's not only Toshiba but we have the means to supply to customers such as Philips and [Electrolux] in Europe also.

I see. And my last question is a follow up, I think, on the question about demand going into the first quarter of the year on Television. I think some of your competitors are talking about how demand is picking up in January and, given how surprisingly strong some of the retail sales were towards the very end of the holiday season with price cuts, some of them are coming back to replenish. Are you -- is that something you're also seeing, or is that maybe a competitor specific phenomenon?

I may not be in position to tell about other company's forecast. In this TV industry has a kind of a typical seasonality. Most of our fourth demand used to drop from previous quarter more than 20%. But since we have some strong relationship with customer side, we've got some pre-compounded volume. So if, -- even though the market has more than a 20% dropping of the demand, but we are expecting high teens dropping of our shipment.

You don't think that the combination of Chinese New Year plus the fact that, unlike existing technology with TV, there may be some structural forces at work to keep volumes pretty buoyant or flat going into the first quarter? You don't see anything like that at this moment?

No I don't think so. And then the Chinese New Year, those kind of things already Chinese TV makers had prepared it from December timeframe. So those kind of [inaudible] events will not bring the huge [demand off].

Okay. Thank you.

Currently, me there are no participants with questions. [OPERATOR INSTRUCTIONS]. The following question will be given by Mr. Mosel from BNP Paribas. Please go ahead Sir.

Yes. Hi, and good afternoon. Just a question about the methods and the PC Monitor market. Could we anticipate that the guidance that you gave for the first quarter could come across the full year, which means that this market will continue to grow between mid-teens and, let's say, high-teens?

And the second question is regarding pricing in this market. Do you see, or do you confirm -- could you confirm that the pricing has been, let's say, stabilizing for 19 inch and basic standard product for PC Monitor by the fourth quarter?

Demand-wise, the last year it was the 125 to 130 and this year we guess it's 145 to 150, so demand grows [inaudible]. And even 2008 we've got demands, gross is going to be over 10%, so still we're expecting a [CAGR] [up to 2010] is around 10%. So there's a demand even though the [inaudible] I expect 10% CAGR over -- between five years.

For the pricing, even though we are turning out more, but the 19 demand is coming up also so there will be price dropping anyhow. It's a very natural down-trend. In the first half we're going to see more -- see the price drop, and the second half we'll see the prices rebounding. I think we're going to go through the very [early] natural seasonality this year too.

Okay. And a follow up is just basically, in forecasting the mix for the TV panels, how much do you expect the 14 inch and over category to represent in 2007 for the full year? Is that still about 45 to 50%?

Probably it's easier to tell you the portion -- portion of revenue, but I may tell you the portion of unit base, probably more that were larger --larger than 40 inch -- equal to or larger than 40 inch category would be about 22 to 25% market share out of a total of 66 or 68 million units.

Okay. Thank you very much.

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

Hi. Just one clarification and then another question. The clarification question is did you say what the depreciation -- expected depreciation would be in the first quarter?

I said for the year it's at KRW2.7 trillion.

Okay. Have you got a number for Q1?

It's -- I think it should be more or less evenly spread. Yes, so by quarter, it will be -- for all quarters around KRW700b.

Okay. And one question is on full HD. I wanted to find out what percentage of your shipments in the fourth quarter were full HD, and how do you expect that spec to evolve in 2007?

Since we had started to ship our full HD version from the middle of last year, so our ramping up in last quarter itself was not that much big. But the trend on full HD has -- seems to be a big growing this year, so probably the second half of this year some of the larger screen sizes, full HD portion, maybe half of the total demand of such larger screen sizes.

Is there a margin difference between full HD and just HD currently for you?

What does he mean [inaudible] margin?

Profit margins.

Yes it has, because there is some price premium and also there is a cost difference we have. So [half the time] the margin structure comparative comparison between full HD and HD has some differences.

Would you be able to disclose how many percentage points difference in, say, operating margin or gross margin between the two for a similar size panel?

I think I'm not in position to tell you about that.

Okay, that's fine. Thank you very much.

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

Thank you. Ron, I just wanted to check on the status of the shift to the business new year strategy. If you could talk a little bit about where you've seen successes so far, and where you're expecting some successes in '07.

I think one of the first success is the focus on COGS down has been intensified, with the result that 10% cost of goods sold decreased on a square meter basis, quarter-on-quarter. Actually, cash COGS was about 12% down so we are very encouraged by that. We see, at this moment, the business units very successfully undertaking the focus that they should have on the respective lines of business that they are taking charge of.

And in TV we're fortifying the [U.S.] very strongly to make sure we have enough capability to execute an accelerated COGS down program. And we're seeing already, we introduced in December, first global COGS models, not low-end, but lower COGS models for existing product lines. And that is particularly encouraging.

In terms of reviewing the supply base, of course, this takes a little more time, but we are convinced that, not only global or overseas sourcing will be increased as we elaborated on in last quarter earnings events, but also the existing supply base can do more to supply LPL with more support. We're particularly encouraged by that.

We also feel that under the more constrained CapEx budget, our efforts to still increase volume more out of the existing capital base are quite successful. And actually about 70% [TGF], for us, is the first time we're communicating that. We're encouraged by that too.

In terms of customer base, of course, now we are seeing that Philips and LGE are accelerating and becoming more aggressive in selling the 42 inch, and we're very encouraged by that too. And we have also made mention of the conclusion of the number of LTAs with some other customers, like the Chinese to other overseas customers, which still the LTA accounts for around, in TV, about 20, 25%. So that is particularly good for -- seeing the fact that we're going into a quite challenging year.

Of course, with the new leadership team in place, and particularly a new CEO, we are picking up on the initiatives that we have already started, plus a number of further reviews on how to best optimize our product mix and come as soon as possible to restoring profitability in LPL. And I think if I look at the direction at the moment and what we can expect going forward, as a result of these efforts, they will be good.

Of course, we're doing this in a first half that is always particularly challenging and we have communicated mid-teens EBITDA margin for the first quarter. We've also communicated 25 to 30% [costs] down for the whole year which is significantly higher than we have done last year. And that is to be able to combat the ongoing price erosion that the gentlemen here have just also described for you in a better way.

So I think at this moment, as I said during the Analyst Day, the [strength] of the Company is more closer collaboration with customers, a different way to look at cost managing more process, increasing the process capabilities at LPL, and becoming more asset light. We're now looking at more overseas modulization and it doesn't have to be all through our own factories. We're looking particularly at China, for example, and reviewing the business model somewhat.

Thank you.

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

Yes. Could you clarify the inventory levels please? You mentioned that the finished goods inventory level at the end of 4Q was slightly under three weeks. And I think at the end of third quarter you were saying the inventory level was slightly over two weeks. So did the decrease in inventory amount come from the reduction in the goods in working process?

No, the reduction came mainly from the finished goods inventory. So that's what we -- when I communicate those numbers to you talking usually about, as we clarify, finished goods inventories.

I see. Thank you.

The following question will be given by Mr. Evan Erlanson from Bear Stearns. Please go ahead sir.

Hi again. I wanted to get a sense of, given the 5.5G FAB potential launch towards the end of the year, maybe early '08, and also the capacity you have in place. What do you think your market share is going to be in widescreen format, Monitor and Notebook screens in 2007, and probably going to '08, given that that's a very profitable segment to be in, and also given other expansions that are going on?

And the second question is in terms of the CapEx. How much of the CapEx in '07 is going to be devoted de-bottlenecking of existing FABs? And also how much capacity of that 30% plus capacity expansion do you expect in terms of input in '07? How much is going to be attributable to de-bottlenecking versus new capacity for the 7.5G FAB and so on?

For the wide -- the size of the market [inaudible], this year we get [inaudible] for around 30%. And every year that will increase by 10%ish so, by the year 2009, I think it's going to like 50%.

Does that answer your question on the Monitor side?

The 50% would be the -- that's a growth rate or that's a market share?

The portion of the total, of the total [market].

Okay. Yes. I think I was asking more as to what your share of the market would be?

Our share?

Yes.

Our share is going to be the same as the portion of the market.

Okay. Thanks.

And then on CapEx, in P7 I said we're adding some capacity, but a lot of the capacity increase -- any good capacity increase is coming from that. I would say more or less -- I think perhaps both capacity increase and de-bottlenecking contribute more or less equally to the increase in capacity. The 30% that I mentioned.

Okay. So equal percentage of both CapEx and also capacity increase?

Yes.

Great. Thank you.

The following question will be given by Mr. Oliver Lowly from AllianceBerstein. Please go ahead Sir.

Hi, just a clarification question. The capacity increase by areas for 2007 would be around more or less 30%, and the shipment would be grown by more 50%. Is that right?

Yes, that's correct.

Okay. And my second question is can you just give me the input of the G5.5 starting from the second quarter, and how does it look like in fourth quarter and the input would be?

Actually, I'm sorry if I wasn't clear on one of the previous questions, but the Gen 5.5 ramp is probably beginning Q2 next year not this year.

Okay. So this year it will be focused on the P7, 90k?

Correct. 90k and somewhere beyond that if the second half looks promising. And for the [inaudible] with the improvement.

Okay. Thank you. Sorry, and the last one is how the capacity for the 5.5 generation?

The initial input capacity will be 30k, and then we'll ramp it probably in three stages to 90k.

Okay. Thank you.

Thank you.

The following question will be given by Mr. Tan Chun from [Nevski Capital. Please go ahead sir.

Hello. Good evening. My first question is just for clarification. Your area shipment guidance was for a mid-single digit decline, and did I hear you correctly, you said that TV shipments would decline by a high-teens percentage, and IT panels by a mid-single digit percentage? Was that right?

That was correct.

Okay. In that case how does the total shipment add up, because you're looking for a mid-single digit decline in over all shipment, but I would assume that if TV declined by a high-teens percentage, then over all shipments would decline more like 10%?

Actually, it's funny that you asked it, I had exactly the same consideration, but I double checked the numbers. It's really true, because at this moment IT is still the bigger portion in square meters than TV. So the fact that IT increases actually contribute to that. I fully understand your question, but it's really a calculated number.

Okay. So for your IT panels did you say it was a mid-single digit increase or a decrease?

Increase.

Increase?

Yes.

Okay. Thank you. And just a follow-up question. It seems like your fourth quarter TV shipments came in a lot below what you were originally expecting, and your guidance, again, for Q1 is for quite a significant decline. Is this a reflection of what the current TV market demand is? Or is it simply a switch of your focus, perhaps, towards higher margin IT panels?

If we go back to the last quarter, we had a very [inaudible] to some of our major customers to bring our 40 inch and then larger screen sizes for the year end sales. But they are [inaudible] was not as much as we expected. That's why we couldn't reach the shipments as we expected them at the end of Q3 last year.

This quarter, most of the -- since most of our customers has a very health inventory levels, and then some of them have had a great job in managing their inventory level at the end of the year, so most of our forecast for this quarter is based on our customers' forecast. And then until this time we didn't add our expectations on top of that. So the shipments forecast for this quarter is we think is mostly likely [inaudible] as of today.

Also please bear in mind the seasonality of TV, it is typically line one third, two thirds, first half, second half. So, even though TV is, of course, a growing segment there is a seasonality. There's always some downward bias in the numbers.

Okay. Thank you very much.

Okay, we'll take one or two more questions.

Currently there are no participants with questions. [OPERATOR INSTRUCTIONS]. So far we do not have any participants with questions.

Okay, in that case on behalf of LG Philips LCD we thank you for participating in our fourth quarter earnings conference call. If you do have any further questions, please call me or our colleagues and I will answer to your questions truthfully. Thank you.

Thank you very much. Goodbye.

Goodye.