LG Display Co Ltd (LPL) 2007 Q3 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 third 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 2007 third quarter earnings results by LG Philips LCD. Please go ahead, sir.

Thank you. Welcome to LG Philips LCD's third quarter 2007 conference call. My name is Daniel Kim and I am 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 Vice President of Marketing, Brian Kim. 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 will 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 third quarter of 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, 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 the call over to Ron.

Thank you, Daniel. Let me begin by saying that we were generally pleased with our results in the third quarter, which exceeded our expected profit levels and followed the successful turnaround in the second quarter.

The results of this quarter reflect our continuous focus on all key areas. First, over the last five quarters we have implemented a Company-wide directive to develop innovative cost reduction efforts, specifically in how we more effectively and efficiently engineer and manufacture our products.

These efforts resulted in cost savings of 9% in U.S. dollars in Q3, which is ahead of our guidance and also which positions us well to meet our annual targets of around 30%.

Second, we continue to maintain a very disciplined capital expenditure management. This has translated into an approach that requires us to be extremely close to the market, working collaboratively with our customers and our suppliers.

And, as to prepare for the future demand, we have decided to move forward with the Gen 8 facility. Today, after a thorough review, our Board of Directors has approved the investment in the Gen 8 facility, with an additional CapEx of KRW2.5 trillion.

We're targeting ramp-up during the first half of 2009 in the already-constructed building called P8. The total CapEx for Gen 8 will be around KRW2.7 trillion. We believe the timing is in line with expected market demand of large-sized LCD TVs.

Next page -- I'm sorry, not next page. Third, we are developing marketing initiatives focused on the needs of our customer base. Specifically, we are co-designing products that better reflect their needs. We will continue to work with our valuable customers to make sure that our products are ideally suited to meet their demands.

Fourth, we are managing our inventory levels to better match both the current and projected market demand. The more rational approach to supply throughout the industry has led to the more stable pricing we are seeing today.

In addition to these key areas, we continue to strengthen our technology base, leading to new products, processes and technologies. For example, we have developed a comprehensive line-up of full HD panels, adopting a high-frequency of 120Hz, based on low resistance copper bus to reduce motion blur and utilizing super IPS technology for a wide viewing angle.

As a result of this, our 42 inch TV panel is steadily gaining market share in the 40 inch segment. We are continuously looking to improve our R&D in order to develop next-generation displays.

Please turn to the next slide. I will discuss the key highlights for the third quarter earnings. Revenue in the third quarter was KRW4 trillion; up 18% sequentially from the second quarter of 2007. The sequential sales increase was largely the results of improved ASPs and an increase in shipments, which was mainly due to higher seasonal demand.

Total cost of goods sold increased 1% Q-on-Q, to KRW3.1 trillion and we are well on track, as I said, to achieve our annual target of around 30% cost reduction for this year. COGS per square meter in U.S. dollars and Korean won decreased 9% quarter-on-quarter. Cash COGS per square meter in U.S. dollars decreased by 8% sequentially. And in Korean won this was a decrease of 9%.

The combination of increased shipments, higher ASP per square meter and ongoing cost reduction, led to an improved EBITDA margin of 35% and an increase -- and this is an increase of 10 percentage points. Net margin improved by 6 percentage points to 13%.

Next slide, please. As of September 30, 2007, our cash and cash equivalents were KRW1.7 trillion. This represents a KRW418b increase over the previous quarter. This reflects our improvements in both net income and working capital.

Finished goods inventory turnover levels for large panels decreased from two weeks to slightly under two weeks this past quarter. TV inventory levels were much improved to less than three weeks, while IT remained at under two weeks. We will continue to carefully manage inventory levels. Our net debt to equity ratio at September 30 was 37%.

Next slide. Cash flow from operations increased to KRW945b. Cash outlays/capital expenditures, of KRW328b, decreased from the second quarter of 2007 and consisted, primarily, of investment in P7. Delivery based CapEx, meaning addition to the balance sheet, was KRW91b compared with KRW244b in the second quarter.

As of the third quarter we were in a situation of being free cash flow positive. To maintain an appropriate cash balance level and to reduce costs associated with our debt, we decided to move ahead with the partial advance redemption of our long-term debt during the third quarter.

Please turn to the next slide. Now I'd like to go into more detail about several specific performance metrics on the next slide. The shipment of total display area reached 3.1m square meters during the third quarter. This was a sequential increase of 11%.

The increase in TV shipments came in less than we guided for, as we allocated some resources to the IT segment and because we experienced a short-term decrease in productivity at P7 whilst initiating some of our new cost efficiency initiatives.

However, we believe that these are the right strategies that will bring about improvements to profitability in the TV segment. On average, ASP per square meter of net display area increased to $1,364, and total ending ASP per square meter also increased; this was $1,369. ASP per square meter was higher than our previous guidance, which was mainly due to strong demand and also the result of the disciplined CapEx spending of the industry from last year on.

For the TV segment, average ASP per square meter in the third quarter increased 1%. Our ending ASP per square meter remained flat. For IT, average ASP increased 15% and ending ASP per square meter increased 11%.

Please turn to the next slide. For third quarter of 2007 the TV segment represented 48% of revenues; this was the largest portion of our sales. That was followed by Monitors at 25%, Notebooks at 22% and Other Applications accounted for 5% of our revenues.

Revenue in the TV segment improved mainly due to the increase of shipments in the third quarter. Although overall ASP in the IT segment increased, its share slightly decreased due to a high portion of shipments in TV.

Next slide. P7 reached production input capacity of an average of 127,000 sheets per month during the third quarter, and that was slightly less than our ambition that we communicated, of 130,000 sheets per month. As I said, we had somewhat of a slower start with some of our new initiatives, but we were able to meet the monthly target by the end of the third quarter.

For the fourth quarter we anticipate P7 capacity to remain approximately equal to the one that we reached in the third quarter, meaning 130,000. And this is considering seasonality and preparation for 2008.

Cash ROIC in the third quarter of 2007 increased from the second quarter of 2007 by 19 percentage points to 51%. This increase is attributable to a higher EBITDA margin and much-improved sales over invested capital in the third quarter.

Next slide. I will now discuss the outlook on the next slide. For the fourth quarter of 2007 we expect, for the TV segment, shipments to increase by a high single digit percentage, mainly due to strong demand and performance improvement at P7, with a mid-single digit percentage declining average and ending ASP.

In the IT segment we anticipate shipments to decrease by a low-single digit percentage where average ASP will be flat, and we expect a mid-single digit percentage declining of ending ASP.

Overall, we expect shipments in the fourth quarter to increase by a mid-single digit percentage and both average and ending ASP will decline by a low-single digit percentage. Our cost reduction per square meter basis is expected to increase -- to decrease by a low-single digit percentage in the fourth quarter, positioning us well to achieve the annual target of 30%.

EBIDTA margin for the fourth quarter of 2007 is expected to be in the mid-30s. We plan to maintain our CapEx of approximately KRW1 trillion for this year. Looking forward, we expect CapEx for 2008 to be around KRW3 trillion, mainly due to the preparation for P8. We feel this is the right approach, given the market demand expectations.

Let me conclude by saying that we are encouraged by the progress we have seen over the last five quarters. We've made great strides in shifting the Company's focus from being volume-driven to becoming value-based.

While our financial performance has certainly improved, we believe that this mind set has also led to better customer relationships and, more generally, a healthier macro-environment. Our manufacturing corresponds closely with current and future demand.

We will continue to make necessary improvements and will build on the progress that we already made. In time you will see additional successes from our innovative technology, disciplined CapEx spending, carefully crafted cost down initiatives and rational production. We are certain that the cumulative effect of these initiatives will bring about accelerated growth and will generate greater shareholder value.

We will continue to update you on our progress and thank you for your ongoing support of LG Philips LCD.

Thank you, Ron. This concludes our earnings presentation for the third quarter of 2007 and we'll be pleased to answer your questions now.

Our Q&A session will begin. (OPERATOR INSTRUCTIONS). The first question will be given by Muse from Lehman Brothers. Please go ahead, sir.

Yes, good evening, C.J. Muse with Lehman. A couple of quick questions on my end, I guess first off, on the 120Hz panels. Can you comment on what percentage of the TV mix you see penetration there in the second half of '07, and then where do you think we'll be in 2008?

[I'm] Brian. In this year, the [42] inch case, 120Hz penetration is 31% and next year over 50%. And 46 inch and 47 inch case, in this year, normally 76% but our Company did over 85%. And next year will be touch on almost 90%.

Got you. And in terms of the embedded electronics, are you looking to drive the Smart Panel adoption, or are you seeing thus far in design ends this year, where your customers are using MEMC technology from the likes of Trident, Philips and Mikronis?

At this moment we are not particularly incorporating Smart Panel technology there.

Okay, great. And secondly, I guess on the inventory front, can you comment by category, both TV, Notebook and Monitor, where you're seeing tightness and then where you are also possibly seeing some excess as we're reaching the peak panel seasonality?

As you know, [our sensor] in the channel inventory still has the back-to-school sales as we expected. So we expect, notably on the Monitor most (inaudible) four weeks' inventory. But normally the inventory level were 4.5 weeks, so we can say they still got the [hedge]. In the TV case, we think normal inventory level is two months. But now the market is still strong, so the inventory is below two months.

And can you comment on where you're seeing the strength and demand on that TV side? Is that tier two brands' emerging markets, or is that broadly across all geographies?

Basically, we are seeing the strength across the board but, as you might have noticed, the -- I don't know whether we should call them second tier any more, but the brands, such as Visio, has been particularly strong this year.

Okay. I was trying to figure out more about the end market. Are you seeing strength across the board there, or is possibly more strength Europe less U.S.; any visibility to that?

At this moment we still see strength. Of course, everybody is mainly concerned with the possible fallout and impact on the U.S. economy of the sub-prime mortgage issue.

We have seen, of course, slower housing starts and car sales down but, by and large, we have no indication at the moment there will be some large demand drops for TV. We expect that to continue. We'll be continuously monitoring it, of course, very closely and there will be some impact but at this moment it's difficult to assess, so things look fairly okay.

By the way, may I ask that you hold the rest of your questions and give other people first a chance to ask something?

Of course, thank you.

Thanks.

The following question is by J.J. Park, from JPMorgan. Please go ahead, sir.

Yes, good evening. I have a quick question (inaudible). [The greater] tax expense, I think you paid almost 20% effective tax rate in the third quarter. Can you a little bit elaborate how it was given that you have this huge balance of the tax credit?

Yes. Well, of course, as you know, we had a lower CapEx level. Also, the investment tax rate has come down. And we have a carry-over loss from last year so, basically, the income tax rate is still zero. But we came out of last year with a quite significant deferred tax asset position and we are lowering that as we make profit. So that explains why we have booked a taxable -- tax charge in the income statement.

So, assuming you can continue to generate this in the profit, is it fair to assume that your tax -- effective tax rate will be around the 20% going forward?

Yes, it will be around that area. But, as I said, this was [mainly the DTA]. The income -- the effective income tax rate for this year will be, we think, not very high.

Okay. Okay, thank you.

The next question is by Andrew Abrams from Avian Securities. Please go ahead, sir.

Yes there's -- I have two questions. First, can you give us a little detail on the cost reduction program for the third quarter and, going forward, how it broke down? Was it new design, was it materials, or how that breaks down?

Yes. Well, as we already guided last quarter, the second half of this year, the purchasing price [now for material] cash purchases would be a little bit more modest. But, of course, it still contributed. We would say the main contribution comes from development innovation. So we have uploaded more of the costing over those models in both TV and IT product segment.

Okay. And on Gen 8, once you open, what's going to be the total capacity available to the facility if it's fully built out? And where do you think you'll be by third quarter of '08?

Yes. So, we're having an initial design capacity of 83. And, well, we'll try to ramp that up in a reasonable speed in line with market demand. At this moment it's too early to say where we will be in Q3. But, as we said, first half, so let's say mid-point, for Q1. So we'll probably be well on our way but not 83,000, [that time of year].

Thank you.

The next question is by Evan Erlanson from Bear Stearns. Please go ahead, sir.

Hello gentlemen, and congratulations on a great quarter. My first question is on CapEx. I just wanted to reconfirm whether this -- the KRW3 trillion number for 2008, is it a cash CapEx or is that an asset addition? And also to reconfirm the KRW1.7 trillion for 2007?

Yes, that's a very good question, thank you. That is the KRW3 trillion -- around KRW3 trillion is not yet cast in stone, is the, what we call, delivery CapEx, so the addition to the balance sheet. And as we expect this year to have -- sorry, end of next year, to have slightly higher equipment on credit at the end of the year, we expect the cash out to be lower. I think at this moment, maybe $0.5b lower.

So we're tagging KRW2.5 trillion cash CapEx?

Yes, 2.5 -- that's it, KRW2.5 trillion. But it's a very tentative number.

(Inaudible).

Indeed. All right.

Okay, got you. It's always that way. And for the -- there was one comment in the presentation actually about the effect of the strengthening won on the operating income. So, I guess you have a guidance for EBITDA margins in the mid-30s for Q4, and then you're guiding for operating income to be slightly lower than it was in Q3. So if you could help me to understand the FX impact? Why would it default to the operating income level rather than the EBITDA level? That would be great.

Well, you know, what goes in the operating income level also translates ultimately back in the EBITDA level. So it's true that we think that the exchange rate -- the dollar will be probably around 910, maybe a little lower. So that is very different from what we have experienced in the previous quarter; that was about 920 or 925, on average.

So we have still the ForEx impact but that is, of course, in operating income. With operating income was -- operating income plus the other business expenses where ForEx is [burnt] is basically EBIT. Plus depreciation amortization, you have EBITDA so the number come straight back into EBITDA.

Okay. And also, finally on the OLED business to be -- theoretically to be acquired from LG Electronics, is this going to be closing by the year end and do you have an update on what the plans are for that?

Are you talking about the OLED business? Did you say that?

Yes, the OLED.

Yes. So that's not really a business takeover. We're not taking over the activity; we're taking over the resources. Mainly it's basically meaning some of the engineering. And if there's useable IP, we'll do that, but we're reviewing that now. So we hope to conclude that in this quarter.

In Q4, and so that is going to be classified as capital expenditure, or is that going to be some sort of other investment?

Well, not really capital expenditure, because if we take over the people then we have to pay some goodwill for having them brought, they are having educated to a good technological state plus the IP, and if we buy IP then we will write that down subsequently. So there is more on the intangible side will be some slight increase. But I think the amounts are not very big actually.

Okay, thank you very much.

You're welcome.

The following question is by [Harsha Kumar] from Lehman Brothers. Please go ahead, sir.

My question has been answered, thanks.

(OPERATOR INSRUCTIONS). The next question is by Mr. Dinwoodie from UBS. Please go ahead, sir.

Thank you. Could you tell us a little bit more about the SG&A jumping, it seemed, quite considerably in the third quarter, and if we should expect that going forward?

Yes, the increase in SG&A is mainly due to increase in transportation. So we are doing a lot of air shipments to satisfy customers' requirements. Unfortunately, that leads to increase in transportation. The costs that you see they are much more expensive than road transportation.

Do you think -- is it seasonal or should we expect it to come back down in the first half of next year? Is it going to be tied to the fourth quarter as well?

Yes, it should be coming down through the fourth quarter. So we expect the fourth quarter the amount to be lower than in Q3.

Okay, thank you.

The following question is by Jeffrey Toder from ABN Amro. Please go ahead, sir.

Hello, good evening. A couple of questions. First, your guidance for a decline in cost of goods sold, is that U.S. dollar terms?

Yes.

And is that average on average, or year end 4Q on 4Q?

This is Q4 on Q3.

No, no, not for the guidance, the full year guidance of a 30% reduction?

That's average '07 over average '06.

Okay. I calculate, actually, that you are already running ahead of your 30% guidance.

That's on a year-on-year basis, correct but -

Year-on-year basis, yes.

But we still have to make the fourth quarter.

If you make the fourth quarter, it looks like you will do about 35% for the year, which is a fantastic improvement. I was wondering what you think your cost improvement might be next year?

Next year, probably slightly lower. I am not giving a guidance number yet because we are also -- we will spend money on getting resources for Gen 8 started. And I think it will be slightly lower than the 30% but I cannot guide you at this moment.

Okay. And your inventory turnover, which you pointed out, has come down substantially. And I was wondering if you have a target rate for that, or if a part of the reduction -- you said you are shipping more by air; that brings your inventory levels down. What do you expect a normalized level might be going forward?

A normalized level for us is around four weeks -- between three and four weeks, I would say. So at this moment it's really tight, inventory. The business units are basically complaining a lot, but this is the situation; we are living in a shortage time. And, of course, we get a lot of customer complaints so we have to maneuver. I expect that to ease down in the -- towards the end of the fourth quarter and going into the first quarter of next year.

Okay. And going into first quarter last year the supply/demand dynamics were obviously a little bit different but a lot of panel makers, including yourselves, made some reductions in utilization rates. Are you -- any plans? Obviously, you are running at 100% now; any plans on how you might approach first quarter?

Yes, so depending on -- by the way, I think you mean this year first quarter, not last year first quarter.

This year first quarter it was down.

Yes, correct.

I was asking about 1Q '08.

Right. So maybe around 5, between 5% and 10%, we will reduce the production operating rate, depending on the outlook for demand. So it depends also on how we are coming out of the fourth quarter inventory-wise for ourselves and for the retail.

Okay. And as a -- just as a final question, you mentioned that you are accelerating your -- you've paid back some of your debt early, and what do you see as your target gearing ratio now? You mentioned in the last call that you might be looking at net cash as your target rate instead of, I think, 30% was your previous -- is your current target?

Yes. That is still a discussion that we are having. And in the meantime we are trying to bring down the debt, year-on-year, as much as possible.

Okay. I've got, actually, one final question. For the CapEx for next year, that would not start depreciating until 2009 when you ramp up the facility, is that correct?

Yes, of course that's correct.

Great, thank you very much.

Thank you.

The following question is by [Oliver Lee] from Alliance Capital. Please go ahead, sir.

Could you please give me the guidance, roughly, for the capacity increase next year and potentially if you add the P8, and how what they look like for 2009?

Normally, we expect next [years] the demand will increase 35% compared to this year, but the supply is a little bit [limited]. So we expect the supply will increase to 31%. But our Company [case] will increase 34% this year. So we can sustain our market shares using that capacity.

What Brian is trying to say is that the demand next year is going to increase by about 35% that according to [this research]. And the industry supply is going to be increasing at about 30%. Our capacity increase next year, inclusive of all the [next cap laws], programs that we are incorporating, is running in line or slightly ahead of the industry's supply, but below the market demand growth. So that is one of the big reasons why we are expecting a tightness next year.

Okay, so in 2009, you basically will follow the strategies slightly lower than the market demand growth, is that right?

2009 we will be starting to ramp our Gen 8, so at this moment we do not have a firm idea what the demand is going to look like. I cannot comment on whether it's going to be below the industry norm or not.

So to be more specific, Oliver, we think capacity growth will be around 25%. Oliver? Hello, hello? Operator?

Yes.

We lost -- did we lose Oliver Lee from -- and can you try to contact?

Okay, wait a moment, please. Sir, should I go to the next person? Hello?

Yes, please do that.

Okay, thank you. The next question is by [Ben Liu] from [Frolit Man]. Please go ahead, sir.

Thanks, guys. Congrats on a great quarter. Two quick questions. One, can you talk a little bit, Ron, about the size mix in Q3 and your guidance for Q4 on the TV side? What did 32 inch do on a Q-on-Q basis, the 42 and 47 and above?

We will give you that answer in a moment. Do you have any other questions?

Sure. The second question I had is on your Gen 8, what are your plans for the panel cuts? Are you planning to focus on 46 inch -- 47 inch and above or you follow in Sharp's lead and use the Gen 8 for cutting 32 inch panels?

We intend to cut 47, 52, possible also 32.

So you -- okay, possibly 32?

Yes. And then to answer your question, you want to know in the 40 inch segment, it's about 40% increase. And in the 32, 37, also in the portion 43%, and the 32, 37, portion is 47%, yes?

Can you repeat that again? That was 40 inch was [40%]?

So 42, 47, the portion was 43% and 32, 37, the portion was 47%?

And what is your outlook for Q4?

I think it's more or less the same.

Okay, great. Thank you.

The next question is by Oliver Lee from Alliance Capital. Please go ahead, sir.

Yes, sorry about the disconnection. My second question is in the second quarter the throughput seems higher than the third quarter. Is that any reasons for the reduction of the throughput in the third quarter?

Well, we have increased shipments in the third quarter by 11%. And that was good, but it was actually a little below the expectations. So, as I said, we have taken some new initiatives which we call max capacity/minimize loss in the Gen 7 lines. And we were a bit slower than our ambitions. So that explains why we had a little bit less shipment than we intended, but there was still more growth than in Q2.

Okay. So in the fourth quarter can we expect a throughput increase or pretty much the same as the third quarter?

No it will increase, but we will experience shipment increase in the fourth quarter also, as we guided.

Okay. Thanks.

And Oliver, I want to check with you, did we answer your first question? I am not sure if the message came across, but to give you the [intended] numbers. So we think we were able to increase capacity by about 25% at [LPO], and our shipment will probably be over 30%.

Okay, got you.

The following question is by Mrs. [Deshpande] from Principal. Please go ahead, madam.

Yes, I just wanted to check on the Notebook balance side. Are you seeing any slowdown in demand for the fourth quarter due to these component shortages? This is from your budgeted, [all year] budgeted, is there a slowdown?

Well, currently at this moment we do not see a slowdown in the Notebook. But as you may have heard there is a disservice in the battery supply recently. So for the time being we do not believe Notebook is going to go into shortage. But if that shortage of batteries prolongs, then there might be some effect that comes to the panel makers. In the case, maybe, more of the panel makers will probably shift their notebook panel production into monitor panel production.

Right. And I have a follow-up question. I wanted to get your thoughts on what's the PDP price competition you see for the fourth quarter?

Well PDP, as we have seen last year, when they had an oversupply -- the overstock they -- in November time and they had -- they dropped the price and cleared the inventory. But because of the shortage of the LCD panels during the third quarter, even the PDP had previous sales and we will still have to see going into November. But the plasma TV at the retail channel inventory level has become better. I don't know whether it has come to the level that will alleviate and, therefore, not -- for them not to dump the prices or not.

Right. Okay, thank you.

The next question is by Jeffrey Toder from ABN Amro. Please go ahead, sir.

Hello, I just wanted to clarify, you mentioned that capacity would increase by 20%, which is consistent with the last call. Where do you expect your 7 and 8G Fabs to be at the end of the year to reach that number?

Basically, we said capacity growth will be 25%.

25%, right. If you break that down on a Fab basis, what would the capacity of P7 and P6 be, say, for Q '08?

P7 will be around 130.

Which is '08. That's '07, right?

125.

Yes. Around 130, yes, that is correct. So as I said, it will remain the same more or less at the end of this quarter. And for the Gen 6 line -- do you have another question? We will have to get back to you on that?

The KRW130 is the guidance for 4Q '07. 4Q '08 is still going to be KRW130.

No, we try to ramp this up further.

That was what I was asking, actually, is where P6 for 4Q '07, but also to achieve that 25% growth in 2008, where I assume most of the growth is still coming from these two Fabs, what the capacity at the year end might be.

This year end for, as I said, for Gen 7 around 130.

Right, but year end 2008?

For 2008, I am not going to guide for that at the moment. But for the Gen 6 line, we think around 165 at the end of this year.

KRW165, okay. Okay, great. Thank you.

You're welcome.

Currently there are no participants with questions. (OPERATOR INSTRUCTIONS). The following question is by Mr. [Jasper] from Merrill Lynch. Please go ahead, sir.

Hello, good evening. Sorry, I just had a quick question more on the overall industry trend, because it seems that one of the trends we are seeing across the landscape is panel makers working more closely with the assembly or the system integrators, whether it's [for] to help the [loading] during the slow season, or to eventually prepare to pave the way for TVs. We've seen this recently with TPV and [Chemay] and some of the other Taiwanese making cross investments into the assembly side as well.

I was wondering if you could just highlight, or show what the LPL's thinking on this particular aspect, and maybe the long-term strategy for this type of business model going forward? Thank you.

Yes, thank you for that question. Actually also, as we said last quarter, we are looking into similar kind of business model changes but at this moment there is no specific plan. We are reviewing what is the best way forward and looking at suitable partners. But, yes, we are also looking in that direction.

Okay, thank you.

The next question is from [Chung Tang] from [Neris Capital]. Please go ahead, sir.

Hello, good evening. I wanted to clarify again about the capacity increase for 2008. I think earlier you mentioned that 2008 demand would increase 35% and supply by 31%, with LPL by 34%. I am not sure if I got that right because we were, later on, talking about 25% capacity growth. So which is it for 2008?

Yes. So, we expect our capacity to grow with the 25% and our shipments will be probably a little over 30%.

Okay. And for your capacity growth even 25% sounds like quite a high number, given your CapEx cuts this year. How much of that will be driven by that next cap initiative versus just normal ramp of P6 and P7?

Yes. It will all basically come from additional ramp of the Gen 6 and the Gen 7 line, as I said. So the Gen 7 ends the year at KRW130 and the Gen 6 at KRW165, as I answered the previous question. And for next year those two Fabs will help generate the bulk -- the vast majority of the growth in capacity and in shipments.

Okay.

As you know, we have been talking a lot about what we call, I repeat again, [next capa], which means increasing [a few other] capacity through things like [tech time] reduction and also minimizing loss through increasing the operating ratio of the Fabs. So we expect some effect from the efforts that we have made in this year also continue into next year.

Okay. And my second question is have you got any plans to temporize your production within Q4, or are we only looking at that in the first quarter of '08?

Well, assuming that demand hold out as we see it now and, as I said earlier, still there are some signs that there could be some slowdown, so those are the uncertain things. We haven't seen that yet for TV, but it may happen. And if we see that, so we are watching very careful our retail inventories and sell through and talk a lot with our customers, then we will temporize production as we have been doing from last year. So we will try to sustain our inventory policy of around three to four weeks of inventory.

Okay, thank you very much.

You're welcome.

The following question is by [Torre Weisel] from [Morgan Capital]. Please go ahead, sir.

Hello. Just a follow-up question on the supply and demand. You've mentioned that demand will increase by 35%; that's going to be on the unit side, right?

No, that is square meters, [based on] area growth.

Depends on the area growth. But your area growth is 25%?

In capacity, but through some efficiency the shipment can be higher. So that's why I said capacity growth 25%, shipment is --

Okay, I got you. That's the shipment growth, 34%, okay. And what about the size migration as we go into next year, do you think it's going to be a pretty big shift in size to a larger sized TV? I am just trying to understand the relationship between area growth and unit growth for next year.

We think 42 inch, which I already said is making a lot of progress, will continue to grow and the 47 will become more popular. And even within existing capacity we are serving some of our customers with 52 inch. So by and large, the mix in larger panels should increase next year.

Okay. And my second question is on the Philips stake. I wonder if you guys have any comments on the progress on that and the resolution on that sell.

Well, basically, that's just a question of -- you have to ask Philips. But they have said they are going to sell down probably within this year. At this moment there is nothing specifically known to us on initiatives that they are deploying to sell.

Right. But are you talking to any potential -- just in terms of playing the situation, just trying to figure out what could be potential partners that you could have?

Yes, that's a good point. There -- of course, there have been people that we've been talking to. But at this moment it doesn't seem that a deal or something is very imminent. So there is not a lot of initiative going on there at this moment.

Okay, great.

So I -- we are not aware of those initiatives because they are not telling us. Let me also -- on the supply and demand side our intention is to sustain our market share. And we will do our best with the capacity we have and the initiatives that we will be deploying to sustain the market share. Even next year we will make an effort to prolong that. I thought it would be good to clarify our intentions.

Okay, great thank you.

The following question is by Daniel Kim from Merrill Lynch. Please go ahead, sir.

Hello, I have just one quick simple question. Despite the excellent result in Q3, I think LPL missed the volume guidance in Q3. The previous guidance was mid-teens volume growth; actual volume growth in Q3 was only 11%. So I was wondering what was the main reason behind this missing volume guidance.

Actually the shipment -- less than guided shipment was basically, in part, came from shifting of production, to some degree, to IT products. And the second part was that we, in the third quarter, have largely inputted the second generation of the re-engineered co-designed new products into our Fabs. And there are sometimes, at the beginning of production, low yield problems. But we were compensated by the bigger than the usual profit levels.

Okay, thank you.

The next question is from Mrs. Deshpande from Principal. Please go ahead, madam.

Just following up on the earlier question from [Jet Siu] -- (technical difficulty).

Operator, can you give assistance?

She is not connected, sir.

She is not connected any more. All right, let's go to the next question. Maybe there will be a rebound.

Currently there are no participants with questions. (OPERATOR INSTRUCTIONS). Mrs. Deshpande is back now, so the next question is by Mrs. Deshpande from Principal. Please go ahead, madam.

Right, I just wanted to further clarify on this -- what would be your thoughts on the assembly side when you said you would look at probably doing something out there? Would it be okay with LPL to get a [brand] along with the assembly operation or would you look at a pure assembly operation?

We would look, basically, to partner with somebody and, thereby, adjust our business model. That's more the way forward.

Right, so in terms of partnering, would it be okay with LPL to partner with a person [who] already has a brand?

No, probably it will be with integrators. And we foresee that TV manufacturing will also go more the way [of IP] manufacturing toward systems integrators instead of making it by the plant. So we would be looking more at partners in those areas.

Right, thank you so much.

You're welcome.

The following question is by Mrs. [Jean Lee Wong] from [Soleil]. Please go ahead, madam.

Thank you. Can you please talk about inventory in the supply chain? In other words, the downstream and distribution guys' inventory level as healthy as you? Thank you.

Well, at the inventory level there we have checked, as Brian has already mentioned, the sell through during the back-to-school season has been as we expected. The inventories at the retail channels when we checked, the IT inventories were at about four weeks, four to six weeks, which is healthy. And for TV, normally we regard inventory levels of six to eight weeks to be healthy, and it was within that range. So throughout both IT and TV the inventories were very healthy.

Thank you.

You're welcome.

Currently there are no participants with questions. (OPERATOR INSTRUCTIONS). Next question is by [William Ram], from [Invincible]. Please go ahead, sir.

Hello. I just wanted to get any guidance that you'd be prepared to give on depreciation for next year.

Depreciation next year probably will be slightly below this year's depreciation. Yes, slightly below.

And [in Q4] this year will be roughly the same as Q3?

Yes, that's right. So bringing the annual depreciation number is, we mentioned a couple of times, to around KRW2.7 trillion.

Okay, thank you.

You're welcome.

Currently there are no participants with questions. (OPERATOR INSTRUCTIONS). Currently there are no more participants with questions, sir.

Okay, if there are no more questions we would like to thank you all for attending our conference call. And if you still have further questions, you can always contact us. Thank you.

Thank you.