LG Display Co Ltd (LPL) 2007 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 2007 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 comment the presentation on the fiscal year 2007 first quarter earnings results by LG Philips LCD. Please go ahead, sir.

Thank you. Welcome to LG Philips LCD's first quarter 2007 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, and the 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. Afterwards, we'll take your questions. Please do not hesitate to contact us after the call if you have further questions.

Before we move into our discussion 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 important factors, among others, set forth in LG Philips LCD's filings with the U.S. Securities and Exchange Commission and in its first quarter 2007 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, further 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 the call over to Ron.

Thank you, Daniel. Over the next hour I will review our earnings results for the first quarter of 2007, discuss our performance and conclude with the outlook for the second quarter. Afterwards we will take your questions. Please turn to the next slide.

Let me begin with a few general comments on the first quarter. We are seeing positive factors at work in the market and are encouraged, but these trends along with our current progress on several initiatives to bring us back to profitability are positioning us well for future growth. There are, of course, still challenges we face, both as a company and as an industry, but important progress was made in the first quarter. The results achieved were better than expected but, of course, not satisfactory yet. There are several emerging industry trends I would like to talk about briefly.

First, we are seeing demand for LCDs outpace demand for PDPs, largely due to the technological advantages offered at comparative pricing. Next, we saw signs of price stabilization as well as an improvement in the supply/demand environment, with improvement in TV and notebook segments exceeding our expectations. In addition, we are seeing stabilizing inventory levels and pricing. We believe that all of these factors strengthened the market this past quarter and played a role in LG Philips LCD's better than guided performance.

At the same time, we made significant improvements in both COGS reductions and operational efficiencies this past quarter. We expect these improvements to continue and anticipate their positive impact on products and cash costs going forward.

We're also benefiting from the addition of several new executives, including our CEO, Mr. Y.S. Kwon. The new management team is adding a tremendous amount of value to our customer-centric mindset. We believe that this commitment to our customers, coupled with the focus on production efficiencies, prudent CapEx strategy and sound balance sheet management, will have a direct and positive impact on our expected sequential improvement in profitability.

Now, let me give you a bit more color on these areas of improvement. Please bear in mind that LPL last year started a strategy of value over volume. We refocused our purchasing, defined a restructuring agenda, cut CapEx, rationalized production and adopted a more customer-centric focus. During this first quarter, we further enhanced relationships with our customers and introduced an extended number of new cost competitive products in cooperation with them.

Reflecting our success in these efforts, major customers have ranked us as the top supplier. We will continue to build upon these efforts. In the COGS reduction we achieved a quarter-on-quarter COGS reduction of 9% and a cash COGS reduction of 12% per square meter in the first quarter. Not only did these COGS reductions contribute to an EBITDA margin that was better than expected, they also positioned us well to achieve this year's guided COGS reduction, up 25 to 30%.

The datapoint is, at least directionally, indicated that our efforts to reduce costs and improve operational efficiencies are working well and that LPL is regaining its strength. As communicated in the fourth quarter of 2006, we expect to maintain our 2007 payback at KRW1 trillion. To utilize this amount, we expanded P7 design input capacity, 210,000 input sheets per month in the first quarter, which will gear us for the expected demand increase in the second half of this year.

Overall healthy channel inventories went to a fairly healthy market in the first quarter of 2007. We expect the market situation will continue to improve as well as helping our internal performance. Next slide, please.

The first quarter, on page six, of 2007 revenue was KRW2.7 trillion, down 11% sequentially from the fourth quarter of 2006. This sequential sales decrease was largely due to the decline in ASP.

Total cost of goods sold decreased 10% quarter on quarter to KRW2.8 trillion, which largely was the result of our cost down strategy. Cost per square meter in U.S. dollars decreased 9% quarter on quarter and 28% year on year. In Korean wan, this represents decreases of 9% and 31% respectively. The cash cost per square meter in U.S. dollars decreased by 12% sequentially and 27% year on year. In Korean wan, this represents decreases of 12% and 30% respectively.

Quarter on quarter our EBITDA margin improved 1 percentage point to 19% and net margin remained unchanged sequentially at -6%. Next slide, please.

As of March 31, 2007, we reported KRW980b in cash and cash equivalents, which represents a KRW26b increase over the previous quarter.

Overall, our inventory turnover level for the large panels decreased from just under three weeks at the end of the fourth quarter of 2006 to approximately two weeks this past quarter. These inventory levels held constant at around three weeks, while IT decreased from slightly under three weeks to about two weeks. We will continue to carefully manage these inventory levels.

Total debt increased by KRW0.2 trillion to KRW4.3 trillion, due to long-term borrowing. Our net debt to equity ratio as of March 31, 2007 was 50%. Next slide, please.

Cash flow from operations decreased to KRW327b, mainly due to the net change in working capital. The cash out to capital expenditures of KRW492b was weighted in our CapEx amount for this in the fourth quarter of 2006 and consisted primarily of amounts for investment in P7 and our Poland module plant. Delivery-based CapEx was KRW345b, compared to KRW522b in the fourth quarter of 2006. Next slide.

Now I would like to provide more detail about our key performance metrics. Next slide, please. During the first quarter of 2007 we shipped a total display area of 2.2m square meters. This represents a decrease of 1% sequentially, which can be attributed primarily to the decline in TV shipments and which was offset to some degree by the increase in IT shipments. On average, ASP per square meter of net display area decreased at a rate of 9%, US$1,287. Total ending ASP per square meter decreased 10% to US$1,246. Please note that the overall decline in ASP was primarily due to seasonality.

For the TV segment, average ASP per square meter in the first quarter fell 9%, while ending ASP per square meter fell 8%. For IT, average ASP fell 11% and ending ASP decreased 13%. Next slide, please.

The revenue breakdown by product segment for the first quarter of 2007 was as we expected. TV accounted for the largest portion of sales, representing 45% of total revenue. This was followed by monitors, at 28%, notebooks at 22% and other applications at 5%. The sequential decrease in the TV share reflects a greater relative impact of seasonality on the TV segment compared to the IT segment. Next slide.

P7 continues to perform efficiently and averaged about 70,000 input sheets per month during the first quarter, and is expected to reach its initial design capacity of 90,000 input sheets per month in the first half of 2007. As announced, we plan to expand the design input capacity of P7 to 110,000 sheets per month in the third quarter of this year. P7 is optimized for the production of 42 and 47-inch LCD TV panels and we expect that the planned capacity expansion of P7 will enable us to promptly respond to the increase in demand of customers. Next slide.

Cash ROIC in the first quarter of '07 declined from the fourth quarter of '06 by 3 percentage points to 20%. This decrease is attributable to lower sales over invested capital. Next slide.

Now let's discuss our outlook and the next slide. Generally, our results in the first quarter of '07 came in better than the guidance provided last quarter. Looking ahead, we expect continued execution on our core operational drivers and a healthier market situation. This will have a direct and positive impact on our sequential improvement in profitability.

For the second quarter of '07 in the TV segment we expect shipments to increase by a high 20s percentage, with an average and ending ASP decline of a mid-single-digit percentage. In the IT segment we anticipate shipments to increase by a low-teens percentage, with an average ASP decline of a low-single-digit percentage and an ending ASP increase of a mid-single-digit percentage. Overall, we expect shipments in the second quarter of 2007 to increase by a high-teens percentage, with an average ASP decline of mid-single-digit percentage and an ending ASP decline of a low-single-digit percentage.

Our COGS reduction per square meter is expected to be a low-teen percentage in the second quarter. As a result, EBITDA margin for the second quarter of '07 is expected to be a low 20s percentage. As previously discussed, we plan to maintain our capital expenditures on a delivery basis at approximately KRW1 trillion. On a [KSL] basis, this amount will probably approach about KRW1.7 trillion. The difference is caused by the fact that we purchase CapEx on a lower level and therefore equipment on credit at the end of '06 was much higher than we expect it to be at the end of '07. The difference is cash out.

Let me conclude by saying that we remain encouraged about the growth opportunities that exist in this industry and we believe we're making the right moves to bring about further shareholder value creation. We will continue to update you on our progress and thank you for your ongoing support for LG Philips LCD.

This concludes our earnings presentation for the first quarter of 2007. We would like to now answer your questions.

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

Yes, good evening. A couple of quick questions here. I guess, first off, can you talk a little bit about the status of P8?

Okay. You had a couple of questions. Do you want to take them sequentially?

Yes, please.

Right. As you know, P8, we are building the shell for P8. As you also know, some of the clean room on a flexible basis equipment but we have not decided yet on equipment for the GEN 5.5 line. That decision we expect to be taken probably at the end of the first half of this year, so at the end of this quarter.

Okay. In terms of teeing up your equipment suppliers and having a clean room and the factory ready by then, does that suggest you could have capacity from this plant by the end of this year or would it be a 2008 event?

No, that will be a 2008 event. And depending on the decision time, as we said, we thought tentatively if we would go ahead with the 5.5, it would be in the first -- towards the end of the first quarter next year.

Got you. In the other presentation this morning you talked about lowering -- or developing a low-cost TV model. Can you help me understand what exactly you're doing there? Are you removing certain films? Are you changing the driver IC? Any help there would be greatly appreciated.

That is correct. As you have just mentioned, the lower-cost TV model will be eliminating a certain part, or certain components, which we used to apply in doubles, for example.

And are those panels being purchased by all your customers or is it more just Tier 2-type customers?

That is also right that the -- it would be more purchased by the Tier 2 customers.

Great. And a last question from me. You talked about increasing utilization at P7. Is that simply the fact that it's been under utilized and so trying to get more customers in there? Or are you adding selected equipment to try to drive increased utilization and output from that factory?

Actually, what I said was we're going to expand P7 to 110k in the third quarter. It's now running at 78. And, of course, utilization by that time will depend on market circumstances, but we expect that Q3 P7 will be fully utilized for the capacity there.

Thank you.

By the way, I would like to come back a little bit on P8, the postponement of the GEN 5.5 equipment decision. That is because in our value-over-volume strategy we would like to see first how much we can max out capacity in existing fabs. We feel that there is still room to improve. As you know, LPL has always been good in ramping fabs beyond design capacity and we'd like to give that another effort. So, we'd like to first see how much we can squeeze more out of the existing capital base before deciding on new capital. Yes?

That's good. Good luck with it.

Thanks.

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

Hi. Thank you. Just talking about -- just revisiting the question again about P8, sorry to harp on it but in terms of equipment commitments that you've already made, is that a potential challenge in terms of scrapping a GEN 5.5 fab altogether? Have you made certain capital commitments to your equipment vendors that requires you to take on that equipment? That would be my first question and then I have just a couple of follow-ups related to other issues, please.

Okay. Thanks for the question. Of course, when you discuss with equipment suppliers you have to make sure that you have slots available. And that is an ongoing discussion but we have not placed any POs at this moment.

Okay. So there are no POs related to GEN 8 right now?

No, P8, that is GEN 5.5.

Yes, that's right, yes, sorry. Okay. The other question is related to your existing P7 line; 110,000 by the third quarter. What, in terms of squeezing out more capacity, more throughput, what's the maximum you could see in terms of glass input or output basis with no incremental dollar spend on that fab?

There's no incremental dollar, or actually very little, hardly, let's say. I think there should be at least another 10, 15%.

So up to as high as 120, 130, if I read you correctly, Ron?

[It's not bad] to bring that about.

Okay, so maximum. And then my last question is related to depreciation. If I recall correctly, in your last quarterly results you mentioned that sometime in the second quarter depreciation of your GEN 5 -- one of your GEN 5 fabs would end. Could you give us a little bit more color on that? I believe it's P5, if I'm not correct, sorry, probably P4. And what you anticipate the depreciation in the second and the third quarter, please?

Yes, that's correct. So the second GEN 5 line, which is P5, because P4 has already, by and large, run out of depreciation. So, we're talking about P5. That will run out of depreciation after April. So the depreciation amount for that fab now is about KRW32b. It will to down to about KRW9b.

What is your guidance for total depreciation?

The same as before; KRW2.7 trillion.

For the full year?

Yes.

All right. Thank you.

Okay. I wanted to give you a little more.

Please, by all means. Don't let me stop you.

You already did. So we think that depreciation actually this quarter is a peak in depreciation for '07. So it's not going to go down dramatically but it will be slightly under 700.

Okay.

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

Yes. I would like to know if you can provide like color in terms of your capacity utilization during the first quarter, like January, February and March.

And also, I'd like to know if you can also provide the -- a proportion for the full HD TV in the second half.

I think the utilization was about 96/97% in the first quarter, average.

So it has been picking up since like March or --?

Yes. We expect in the second quarter that it will pick up slightly.

Right, I see.

And a portion for full HD versus HD. We will be running full HD -- TV wise, full HD portion will be by the end of the year about 20%, slightly higher.

That is the overall or it will be among the larger size or --?

That will be overall.

Overall, right. And how aggressive will you be in terms of like marketing the full HD in terms like the price premium that you're planning to charge over the regular HD TVs?

Currently, we're charging about 10% on top of HD. And over the year maybe that might come down slightly but basically the premium on the full HD versus HD would be, in general, 10%.

10%. Okay, great. Thank you so much.

The following question will be given by Mr. [Jeffrey Carter] from ABN Amro. Please go ahead, sir.

Hello, good evening. I would like to start with just a couple of questions. I would like to start on page 11 of the presentation, just to understand that slide a little bit better. Is it showing that capacity at all of your fabs actually decreased sequentially in 1Q '07?

Yes. So the input sheets slightly decreased.

But that's the capacity for input sheets, not a reduction in utilization rate?

Yes. It also depends on how you load the fabs. Some products that were newer could run at [5 maps] mode or the [4 maps] mode.

Okay. Looking ahead into 2Q, I ran some quick numbers and it seems to indicate, based on 90k capacity for P7, that your capacity conversion factor will increase substantially in the quarter. Is that calculation correct? And, if so, could you explain where that improvement in efficiency is coming from?

Well, I don't think it will dramatically improve because we're loading more cost-effective models which have, in the beginning, slightly lower capacity conversion. They need a little bit of run-in time. But it will improve slightly, yes.

Okay. And then, finally, I guess could you give any guidance on your taxes or tax credits for the next several quarters?

Yes. So the tax variation that you see is mainly because of the deferred tax asset increase as we made a loss this quarter. It has to do with investment tax credit and other credit that we have. So, depending on the results that develop this year, that will be either a plus or a minus. I cannot really comment on that right now.

Okay, great. Those were my key questions. Thanks very much.

Thank you.

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

Good evening, gentlemen. Thanks very much. My first question is on the cost down that you reported for Q1 and also looking out. Now, the cost down was better than I'd expected, at any rate, down 12% for cash COGS was pretty impressive in particular. And I guess that if we've looking forward into Q2 and you're expecting to see COGS per square meter come down at an even faster pace as EV shipments increase in terms of area. I was wondering if anything is happening on the raw materials cost side that gives you particular confidence that you'll be able to bring down COGS per square meter at a faster rate in Q2, even though the mix of the products seems to be shifting a little bit unfavorably in terms of the profitability.

Yes, certainly. Thanks for that question. On the purchasing side, we have had a supplier conference in January where we made it very clear that we'd like to go over a model to -- that says like share the burden now, share the profits later and we had a very favorable response from suppliers and we expect to repeat such activity in this month. So that has worked particularly well. We have achieved major cost downs in the area of [technology] but also in large drivers it polarized, actually more or less across the board.

In terms of development CIs, we earlier answered. You know we have major league designs that we designed out a few components without sacrificing further screen performance, of course. And the -- we are going to increase the loading rate of more cost-effective models. And then, on profit efficiency, we have been a little bit more productive than we anticipated and we expect that trend to increase. So we expect to become more productive. I think those three activities sum up. We're confident that we can prolong it and achieve the indicated guidance that we gave for COGS for the whole year, for the '06 whole year, that will be 25 to 30%.

Okay, thanks for that. And on the low-cost models that you're coming out with, my other question was more on the customer side. What do you think is the key change in your customer base that will happen in 2007? Do you think you'll become less concentrated with the top three customers or perhaps more concentrated? And for these low-cost models, who's that really going to be focused on from a customer side?

Yes, let's talk about this low cost. It's lower-cost models and not lower-end models. And actually, the lower-cost models apply throughout the customer base. So I know earlier we maybe have given that not so good indication about second tier. It's basically across the board for all customers. We're simply giving them the same screen performance but at a lower cost.

Now, will the customer base change significantly? The major customers are certainly getting more aggressive in their TV sales. So we will grow the customer base but as major customers have aggressive plans I think the ratio is not bound to change much for this year. There will not be a lot of movement in there. We do add new customers to our base and try to make more and more long-term agreements with new customers in the U.S. and also the Chinese customers. That's a definite ongoing process. So, no major shift from the top customers in the ratio of LPL.

Okay, thanks very much.

Welcome.

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

Just a couple of questions I forgot to ask. One was on the Poland facility. What is the module capacity there? Or to put it differently, what percentage of your panel output do you think will ultimately funnel through your Poland operations?

And then the last question I had, basically looking at your volumes into the second quarter. I know seasonality is in everything but volume growth seems very strong. Just ask -- just wondering what's driving that TV volume growth into what ostensibly is a weak season.

Okay. I think C.S. Chung here at sales is better positioned to answer, but I think the uptake in the preparation for second half has a lot to do with that.

From the IT side, the Q2 is going to be a little bit slow season but, as we mentioned, notebooks demand is quite slower than we expect. So the -- in terms of unit rates, I think we could have more than 10% growth. Keeping also this theme, that we really hit the sweet spot, the [good point]. And as you can see, this is not such a [inaudible] can repeat. So I think [inaudible] the problem to have that -- the quarter-over-quarter growth.

Okay. Thank you.

And on your question on the Poland factory, the initial capacity we expect is about 3m units gradually on the shorter term. And the total capacity will run into 2011 by 11m units. So I think this year, of that 3m initial capacity, we'll quickly go up to about 6m. Yes?

Okay. And is this just for TVs or is this across all applications?

It's mainly for TV.

Mainly for TV.

Yes.

Okay. Thank you.

Yes. [For flat] TV.

The following question will be given by Mr. Andrew Abrams from Avian Securities. Please go ahead, sir.

Just a couple of quick questions, first housekeeping. On the yearly COGS, 25 to 30%, that's non-cash, I'm assuming?

And second, on the glass side, can you walk us through your arrangements are with your glass suppliers? Are you doing quarterly [re-ups] on your glass or are you doing full-year contracts for better pricing?

And last, can you talk a little bit about your relationship with Philips? Everyone knows what the circumstances are there, with the stock and the potential for sale, but how is this going to affect your position with Philips as an OEM, as an end user, in your eyes?

Okay. Your first question, no, the 25 to 30% is COGS, but the cash COGS number is almost the same.

Okay.

So they go hand in hand.

And you asked about how we go about glass. Well, we have main glass suppliers, some from Corning and Asahi and NED, but also PEG, our joint venture with NEG. Those are the main suppliers and Corning is the biggest. But we've also started glass supply with Schott from Germany and right now we will start -- we expect to start soon in [10-7] glass production with them. The agreement and the pricing is basically on a monthly, almost, basis that we try to renegotiate pricing, certainly at this time. Yes?

On Philips?

On Philips, well, as was indicated I think by media reports earlier, Philips would not fully exit the joint venture. They currently hold 32.9%. We are inclined to believe they will hold that until July this year, which is the shareholder agreement. And after that they will probably want to sell initially down maybe somewhere below 20%. But they will remain a strategic partner, as a shareholder and also as a major customer.

So you wouldn't expect much change from their perspective as an OEM or a major customer?

Of course, what we've always said is if their position as major shareholder was significantly diminished then the robe of love will come off and it's going to be all about performance, quality, cost and delivery. Not that there is much love; it's quite business like. But the onus is on us to demonstrate that we are a truly and worthy strategic partner with high quality, high technology products, as evidenced, for example, by Dell choosing us as best suppliers of the year 2006. We got an award for that, as you know.

So we have developed, apart from the major shareholdership by Philips, of course a very strong strategic relationship with Philips and they need us. We're not the sole supplier. They're also second sourcing. But we are their main supplier and we'd like to keep it like that.

Thank you.

The following question will be given by Mr. Eric Reubel from Miller Tabak Roberts. Please go ahead, sir.

Good evening, gentlemen. Thanks for taking my call. I have a question on the low-cost model panel that you're planning. Can you certify my expectations about how much of the COGS reduction is driven by lower component pricing, specifically for lower driver LCD costs?

If you look at the annual COGS at 25 to 30%, we have said that around 50% is from purchasing TI; about 35% is from development TI. So that is where the lower-cost models are made. And 15% is from process innovation. And driver IC, that is an important point. We're still increasing our multi channeling of driver IC and also we're seeking partners who have lower back-end costs. So the driver IC cost, I think in the first half this year, will come down at a level of about -- between 5 and 10% every month.

When you talk about multi channeling, are you talking about multi sourcing, different -- from different suppliers?

No. What I mean is you put the channels of two chipsets basically on one chipset, which will then be slightly bigger but you have still a tremendous cost advantage.

So we're talking increasing the IL from 128 to 256?

Yes, exactly.

Okay. And on P7, I believe that that factory is optimized for 42 inch and 47 inch. Is that correct?

That's correct. That's correct. 8 cuts 42, 6 cuts 47.

And if I recall, it was in -- with respect to last year that factory was not -- hadn't been up and running for a full year, manufacturing yields were slightly lower. As a result you were possibly less cost competitive in the market. If I understand your outlook for the second half of 2007 you, I believe, are saying that this factory is now going to be up to a full manufacturing yield, getting close to very full, possibly over exceeding your capacity requirements. Am I understanding that correctly?

Let me say the following. I think of course the starting point of P7 was in January last year and it takes some time before you ramp the fab to a decent what we call capacity conversion factor. That is the production output. Then you divide it by the input sheets, which will typically be between 65, 70%. So we expect P7 in this year with now a product design capacity 110k to fall in that bracket in the second half. So, yes, the productivity of the fab will improve significantly.

Great. And then I have a last question. I believe that there was an announcement about plans for a small panel LCD factory in China. Can you perhaps provide some color on that, when production could be ready? Anything would be appreciated.

Yes. We are indeed -- we intend to build a small panel plant in China, small panel facility. We are looking at what is the best optimal way. I think it will take maybe another year before that plant will be up and running, depending on the business model that we choose. It could be that we go for some form of outsourcing.

some form of outsourcing in terms of the panel manufacturing or --?

Yes, that's correct.

So when do you think you could be seeing -- just sort of frame my expectations. Is this an '08 kind of event?

Yes, early in '08.

Early '08. Okay, gentlemen. Thank you very much.

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

Yes. Hi, good evening. One question. In January you gave an estimate for your capacity growth that you had more than 30% year on year. And you said that your shipment growth is -- you're targeting more than 50% year on year. With the P7 capacity expansion later this year, can you update those numbers? Thank you.

I think the growth was over 50%, I think maybe 55 to 60%.

This is for capacity?

No, that's for shipments. So the capacity was a lot like, let's say, 35 to 40%.

And this is with the effort to squeeze more capacity out of the existing capital base?

Yes, that's correct.

Okay. Thank you very much.

[OPERATOR INSTRUCTIONS]. The following question will be given by Mr. Chris Liu from Lehman Brothers. Please go ahead, sir.

Hello. I guess one quick follow up here on slide five and profitability in 2007. You speak to, in Q2 '07, Q3 '07, starting to see panel shortages and then particularly in the second half for TVs. Can you talk about what evidence supports that view, and whether that view is simply for you guys or your expected view for the whole industry?

Q2, I mean in terms of seasonality, it's not only in the high season at all. But in terms of a low price point that really gives us a lot of demand, and not only TV, also IT the same situation. But anyhow, TV is getting [shipments] especially for the 32-inch area which is much cheaper now. So it doesn't really hurt demand. Is the right answer to you?

I guess in terms of saying TV panel supply shortage in the second half, is that your view for the industry or for just you guys?

I think it's sort of like an average, industry wide. It's the typical seasonality. We still believe in the over 6% is back-end loaded in the second half. So world wide -- industry wide there's going to be shortage.

Thank you. And I guess, in terms of expected shift, then, of capacity to TVs and a bottoming in pricing on the IT side for panels today, are you seeing any large customers step up and buy large quantities now to secure capacity?

Yes, at the moment we're seeing that, especially in the IT side, people trying to put in more volume at the moment.

And how about on the TV side? When would you expect that to start to meaningfully ramp?

Even TV side, actually, TV side, that comes -- begins earlier than IT side. From January we're seeing that they are putting more demand. And IT side from March we're seeing that. So, it's already there.

Got you. Great. Thank you.

[OPERATOR INSTRUCTIONS]. The following question will be given by Mr. Ivan Goh from Dresdner. Please go ahead, sir.

Yes, hi. One more question from me. I just wanted to find out how much of P6, P7 capacity right now is being used for IT panels and how you think that would change, given your outlook for the second half of '07.

P6 is used about 20% for IT and I think P7 is 10 to 15%, let's say more closer to 10%.

And will they all be converted to TV panels by the second half of the year, given the shortage that you predict?

That depends on which one has the more higher profitability -- more profitable.

Okay, thank you.

The following question will be given by Mr. George Chang from Citigroup. Please go ahead, sir.

Yes, hi. Thanks for taking my questions. Number one, you have been achieving double-digit COGS down per quarter, so [technical difficulty].

Operator, is it us falling away or is it --?

Okay, the following question will be given by Mr. Jeff Evanson from Morgan Stanley. Please go ahead, sir.

Hi. It's Jeff Evanson from Sanford Bernstein, actually. You've talked about your lower-cost panel strategy in terms of reducing number of film layers and in reducing driver cost circuitry. I'm wondering if you're also looking toward using glass with lower technical specifications, for example more defects per unit area, in an effort to get costs down?

We are studying the possibilities of that but at this moment that is not being done yet.

And overall for the year, how do you expect to see your glass prices decline and what are the sources of that decline?

We think P7 glass will come down significantly compared to last year because we're in a very much higher volume mode. And also the fab is more productive and glassmakers have gone through their learning curves. So the price is going down by, I would say, 15 or 20%. I think overall glass will come down by more than 10%.

Thank you.

The following question will be given by Miss [Julie Edgeway] from [Senser Capital]. Please go ahead, sir.

Yes, hi. I have a question about the shortage that you were alluding to in the second half. Do you think that yourselves or other panel makers will be building inventory to address the shortage right now?

I think, as the capacity increase industry wide doesn't match this year, and so in Q2 -- Q1 we're going to produce about, industry wide, around 9%. But the customer ask us more. The [patterns] I think are second quarter most of panel makers are going to run their capacity 100%. So I don't think that they have room to pile up some inventory for the second half. Just how it's going to turn out is very hard to see.

Thank you.

[OPERATOR INSTRUCTIONS]. So far we do not have any participants with questions. The following question will be given by Mr. Andrew Abrams from Avian Securities. Go ahead, sir.

Just one quick follow up. Can you talk about transportation time and what is in your inventory that's actually moving inventory, that's not in production or sitting at the plant? I know we've gone from air shipments to sea shipments and it's a little hard to judge how much inventory is floating at any given time.

Yes. Inventory sailing is, from us to our subsidiaries, is about three to five days and from overseas subsidiaries to customers it will be about eight days in transportation. Yes?

Thank you.

[OPERATOR INSTRUCTIONS]. So far there are no participants with questions. Hello? Hello?

Hello.

This is the operator. There are no participants with questions anymore, so would you like to go ahead with the conference or --?

All right. If there are not anymore questions, then we will end this conference call. Daniel?

Yes. And in that case, on behalf of LG Philips LCD, we thank you for participating in our first quarter earnings conference call. Should you have any further questions, please contact either me or my colleagues. Thank you for your participation. Thank you.