LG Display Co Ltd (LPL) 2009 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 2009 first quarter earnings results by LG Display.

This conference will start with a presentation followed by a [division] and Q&A session.

(Operator Instructions).

Now we shall commence the presentation on the fiscal year 2009 first quarter earnings results by LG Display.

Welcome to LG Display's first quarter 2009 conference call.

I'm C.H.

Lee, Senior Manager of IR team.

On behalf of LG Display, I would like to welcome everyone to our global quarterly earnings conference call.

I'm joined by Kevin Choi, Vice President of TV Marketing Department, Davis Lee, Vice President of IT Marketing Department, [James Dean], Senior Manager of Mobile Marketing Department and Y.H.

Jeong, Senior Manager of Market Intelligence Department.

We have around one hour for this call.

We will spend the first part of call explaining key issues for the quarter, which correspond to the slides available on our website.

Afterwards, we will take your questions.

Before we move into our earnings results, please take a minute to read the disclaimer.

We are reporting in consolidated Korean GAAP.

US GAAP numbers will be posted on our website in the near future.

I'll start with the first quarter 2009 earnings results, followed by the performance highlights and outlook.

Afterwards, we will take your questions.

Please turn to the next slide.

Firstly, we will present our earnings results from the first quarter 2009.

Please turn to next slide.

Revenues in the first quarter [around] KRW3.7 trillion, down 12% quarter on quarter and down 9% year on year.

COGS per square meter in US dollars decreased around -- to around 10% quarter on quarter.

We recorded an operating loss of KRW412b.

Our EBITDA margin was about 4%.

Next slide, please.

As of March 31, 2009 we had around KRW3.6 trillion in cash.

At the end of the first quarter our finished goods inventory level for large [panels] was very tight, at less than two weeks.

The inventory level of both TV and IT at the end of the quarter was less than two weeks.

Our liabilities to equity ratio was 110% and current ratio was 130%.

Our debt as of March 31 was approximately KRW4 trillion, which was slightly increased from the previous quarter.

However, it was mainly from the ForEx effect.

Our net debt to equity ratio as of March 31, 2009 was 5%.

Please turn to next slide.

Cash at the beginning of the first quarter was around KRW3.4 trillion.

Cash flow from operating activities was KRW1.1 trillion.

Cash flow from investing activities was negative KRW1 trillion.

As a result, cash at the end of the quarter was increased KRW140b, to around KRW3.6 trillion.

Next slide, please.

Now, I'd like to go over our performance highlights.

Next slide, please.

During the first quarter our shipments decreased about 3% to 3.8 million square meters.

Compared to the end of Q4 last year our Q1 ASP stabilized without further decline and, in case of some models, the ASP even slightly increased.

However, on average, ASP per square meter decreased about 12% quarter on quarter to $669.

For the TV segment average ASP per square meter in the first quarter fell 15% and, for IT, fell 8%.

Please turn to next slide.

During the first quarter the TV segment represented 56% of our revenues, followed by Monitors at 23%, Notebooks at 16% and Applications at 5%.

Next slide, please.

We have successfully started mass production at our Gen8 plant in March and the ramp-up is right on track at the moment.

Our average utilization rate in the quarter was [93%].

The total production capacity slightly decreased during the quarter.

This is from the equipment retooling activities started at the end of last year, as well as the reduced calendar days compared to the last quarter.

Next slide, please.

Lastly, we turn to our outlook section.

Next slide, please.

In the second quarter we anticipate the market to improve due to the strong panel demand, especially for the TV segment.

Also, we expect the IT panel demand to increase gradually due to seasonality, as well as the demand increase from some [makers].

We expect our total shipment to increase by a mid to high 20s percentage.

The shipment for both TV and IT segments are also expected to be this level as well.

In case of ASP, we expect a gradual increase during the quarter.

COGS reduction per square meter in the second quarter is anticipated to be a mid single-digit percentage.

Our CapEx for 2009 is estimated to be around KRW2.5 trillion.

Thank you.

This ends our presentation for the first quarter 2009.

We are glad to answer your questions now.

Now Q&A session will begin.

(Operator Instructions).

The first question will be provided by Mr.

Brian White from Collins Stewart.

Please go ahead, sir.

Yes.

I've got a question on a couple of things.

Number one, when we look at inventory out in the channel for IT and LCD TVs, how many weeks are we talking right now?

Okay, Davis Lee from IT Marketing Department.

First, IT side Notebook during the first quarter industry consumed less of carry-over inventory from fourth quarter, and now we believe it is around 23 or 24 days, judging from our -- the customers' PSI information.

So if it is 23 days, that means less than four weeks, which is very healthy -- back to healthy situation.

But in case of Monitor side the inventory tightness is a little bit more severe.

According to our calculation, it is around 17 days or 18 days.

Since our customer was very concerned about the first quarter projection of this year, they reduced their inventory quite aggressively.

So, as a result of that kind of inventory reduction activities, now the industry's inventory level is very healthy.

That I can summarize.

Kevin?

Okay, this is Kevin Choi speaking for LCD TV area.

LCD TV area inventory level, there is two different kinds of inventory level.

One is retail channel's inventory and the other is TV producers' inventory level.

And then retailers' inventory, it depends on different retailer, but normally they think that about four weeks inventory, or three to four weeks inventory is normal, but most of them the inventory level about one to two weeks short right now.

And the TV producers, so compared to their normal inventory, it depends on different company, but one to two weeks they are short right now.

So all together, average wise, I think that two to three weeks shortage attrition right now.

That's the inventory situation.

Okay.

And when we look at pricing, where do you expect the biggest increase in pricing in the second quarter versus the first quarter in terms of market, TV versus IT, and in terms of sizes?

I think the smaller size is tighter than the larger, but if you could add more color on that that would be great.

TV size, most severe shortage was in the 32 inch area in the first quarter.

And now we are experiencing a (inaudible) below also 42 and 47, all models there is a shortage situation.

So since February started -- initially, January 32 inch and below was shortage happen.

February and March comes all the models -- it's not just shortage -- not the small one or bigger one, all the model lines right now are shortage situation.

So price [up], we start increasing the price 32 inch and below, but from April we actually start 42 and that's kind of -- and above that's also starting right now.

Okay.

And how -- what type of increase should we think about for the TV market in the June quarter?

A low single-digit price increase?

It's hard to tell because it's just April right now, because still we have to -- we are doing the monthly price negotiations, so May/June still is too far, so maybe.

But it's not low single digit, I can tell you.

It's not low single digit.

Meaning, it'll be higher.

Higher than low single digit.

Okay.

And, just finally, when are you going to put up the US GAAP results?

I don't see the US GAAP result this morning, only the Korean GAAP.

Yes, we know that.

We actually -- we will post it in May presumably.

So if we post it on our website, and then I will let you know.

Okay, thank you.

Okay, with the -- if I add the IT side pricing issue, we need to have two perspectives in case of IT pricing.

First is the -- since the industry last year second half, industry experienced the unprecedented price drop in a very short period of time, and the manufacturer of the displays suffered a lot of the losses.

The majority of those suppliers' pricing is way under cash cost.

And since economic downturn has been more than three quarters as of today, I don't think that the industry can no longer afford that kind of price erosions.

So that is supplier side.

But at the -- the demand side is, as we have experienced in TV case, the IT side too is have to have that kind of demand increase.

Especially during the first quarter we experienced stronger than the expectation upside in Monitor side.

And the Notebook side, usually notebook follows the pricing of Monitor four months or three months behind.

Now the industry's inventory level is -- began to back to normal, we are seeing some of the upward pressure for Notebook side too.

So short-term point of view, IT side profit margin is lower than TV side.

The upward pressure for IT side is going to be bigger than TV side.

That I can tell you -- explain you like this way.

Okay, great.

Thank you.

Yes, thank you.

Thank you.

The following question will be presented by Mr.

Andrew Abrams from Avian Securities.

Please go ahead, sir.

I wonder if you could give us a little help on the CapEx for 2009.

If you could break it out in terms of where you're going to be spending, and how much of that 2009 number represents 2008 spending that might not have happened and that got pushed into 2009.

Yes, we actually guided KRW2.5 trillion for 2009 CapEx, so around KRW1 trillion for the Gen8 and Gen6 extension and another KRW0.6 trillion were there for the [LTCS] investment.

And the other around KRW1 trillion will be for our maintenance CapEx.

So that is our breakdown of our investment at this moment.

Is there any of that that got pushed from 2008 into 2009, even earlier in the year?

Yes, it was already reflected in the numbers.

Okay, so it hasn't changed from what you already had?

Yes.

Great, thank you.

Thank you.

The following question will be presented by Mr.

Jeffrey Toder from RBS.

Please go ahead, sir.

Hi, good evening.

First question, you've talked about how inventory levels are currently below normal levels.

And you also talked about how your utilization rate has picked up, and I think we've seen a pickup in utilization rate across the industry.

How much of the --

Jeff, Jeff?

Yes?

I'm sorry, we can't hear you clearly.

The line is not good at this moment.

Can you hear me better now?

No.

No.

Should I try to dial back in?

Okay.

All right, I'll try to dial back in.

Okay.

All right, I'll be back in a sec, thanks.

The following question will be presented by Jae Lee from Daiwa Securities.

Please go ahead, sir.

Yes, good evening.

I just had a quick question regarding your net losses.

I notice that it has narrowed quite substantially compared to 4Q '08, so could you go over what are the major items for the non-operating side, like [actually metal] losses and also FX related?

Yes, do you mean the difference between the operating profit and the net income?

Yes, that's correct.

Yes, that is -- the main reason is coming from our -- the deferred tax asset increase which affects the tax expense actually.

So if you look at our P&L, it is actually the positive effect on our net income.

So this quarter, actually, deferred tax asset has increased affected by our net loss, as well as some tax credits for our investment.

Right, but in 4Q '08 things like (inaudible) losses were quite substantial.

But just looking at the pre-tax loss margin, by first quarter pre-tax losses were much smaller than the 4Q '08.

Yes.

So does it mean that (inaudible) losses have declined quite substantially?

[So] Q4 last year --

Yes.

-- actually the some -- our price (inaudible) --

Right.

-- [yes], but the expense was reflected as a non-operating expense at the time.

So that is the difference.

And our net operating income and the net operating expenses actually it is -- doesn't make any big difference at this quarter.

Right, okay.

Thank you very much.

Thank you.

The following question will be presented by Jeffrey Toder from RBS.

Please go ahead, sir.

Okay, I'm back.

Can you hear me better now?

Yes.

Okay, good.

Okay, first question, you mentioned how we've seen a -- inventories run down to abnormally low levels, and we've seen a pickup in utilization rates both at your Company and at other panel makers.

How much of that do you think is related to moving inventories back up to normal levels?

And how much of the demand that we're seeing do you think reflects the end market?

I think the TV side, our inventory level, I think that we need to go back to normal inventory level I think and we need to -- about one week we need to increase our inventory level to go back to normal.

Then do you think that that sign of return to normal inventory levels has already been reflected in the orders that customers have put into panel makers?

Still that -- the May/June customers' order are continuously changing.

The model mix is also changing.

So it's also continuously changing right now, so I cannot exactly tell you at the end of June the exact level.

I cannot exactly say right now, because mix always change and the area also changing.

But what do you think, though?

It depends on the market situation.

If the situation is really, really even in the end of June still a big shortage situation, then maybe our inventory situation maybe also several days short maybe when we end it.

So it depends on the market situation.

I guess my question is that, looking at low inventories at a time when either the industry is running at full utilizations or hasn't changed their utilization is quite a valid metric, but looking at low inventory levels when we've seen production at panel makers already ramp-up, it seems to be a less important signal than it would be in other circumstances.

Is that fair?

Let me answer your question.

This is Davis Lee.

Davis.

Earlier I explained that the industry cleared most of those inventory issues, and now their inventory customer side is the tight and back to normal situation.

And, on the other hand, our side inventory level is very low; less than two weeks.

In some cases, in Monitor case, we are seeing some of the -- lower than 10 days DSI too from time to time.

So judging from that kind of fact, we do believe that the inventory -- the current inventory level is going to be tight throughout the second quarter.

Because even without the customers -- the biggest demand during the first quarter inventory level reduced.

And the fact that the customers' inventory hasn't been increased, on the other hand it reduced, that tells that the demand is increasing, even though we cannot tell you for sure whether it is out of the -- the demand is out of just the channel stuffing or really sell through.

But we are inclining to believe that is more of those demands are really from the demand side.

Okay, great.

That's very helpful.

Okay.

Now just back to guidance for a minute.

You've guided for a gradual increase in prices.

What does that mean?

Does that mean you expect prices to continue to rise sequentially throughout the quarter, or you're looking for an overall increase in prices on a quarter-on-quarter basis?

[I] gradually meant that monthly continuous growth, monthly continuously price increase, the possibility is very high.

Okay.

And if we were to think about that as ending up as mid single-digit increase on a Q-on-Q basis, would that be a fair assumption?

No.

It is very difficult to say.

That's why we give our guidance like this, this correction.

So it is definitely the pricing will be improved definitely, but we cannot say exactly.

That is what we are saying at this moment.

But actually considering current market situation, we are now -- do not meet our customers' demand fully, actually, so [our] pricing threshold is very high at the moment.

Right.

And there are actually a lot of orders coming to other panel makers who had lower utilization rates as well.

Okay.

And you didn't give any guidance on margins this quarter, following [from them] -- as well as last quarter.

Do you have any -- can you give a range of where you think you might be on your EBITDA margin?

No.

No, actually.

Actually, we didn't provide such a profitability-related guidance last quarter and this quarter also.

So this means that this industry is much more volatile and it is very difficult to say any certain range or specific numbers.

So please understand our difficulties in forecasting exact numbers.

That's okay.

That's our job to do the forecast anyway.

Okay.

And your cost improvements missed your guidance a little bit, and that's the second quarter that you've missed.

Is there any reason you could point to for that?

No.

Actually, we guided low teens --

And it came in at that?

-- yes, in first quarter, so, yes.

Because, actually, we lost a little bit of the percentage, but it is almost the same with our guidance, actually.

It's almost the same as guidance?

Yes.

Okay.

And what is your currency forecast for 2Q versus 1Q?

So it's almost the same, but our Q2 guidance assumption was around 1,400.

Yes, 1,350.

1,350 for 2Q?

Yes.

And what was your 1Q number?

1Q actual number was 1,400.

It was 1,400, okay.

And that's -- so when you gave your guidance for costs, those are the numbers that you use to translate to US dollar?

Yes, it was, yes, right.

Okay.

And what is the capacity of T8 forecast at the end of this -- or your 8.5G at the end of this quarter?

Yes, it is when we have a Korean conference this afternoon.

Also we communicated we will [flexibly] adjust our Gen8 facility's capacity depending on market demand, actually.

So it is quite depending on our market development, actually.

Okay.

And 6.5G starts this month, right?

Yes.

Excuse me, 6G extension?

Yes, right.

And what is the initial capacity?

It will start from 15K, actually.

15K?

Yes.

Okay, 15K.

Okay, good.

And, I'm sorry, I missed some of the explanation on taxes.

I guess the biggest issue is this should we -- how should we think about taxes for the current quarter?

Current quarter, actually.

(Multiple speakers).

Not the first.

I don't need an explanation of the first quarter.

Yes.

Actually, we will have some tax credits for our investment and also the other part of the (inaudible) our [profitability] related.

Actually, if we realize loss then we will have another tax benefit for that, but it depends on our profitability.

But I think we will have some tax credit for our investment.

Actually, we have invested a lot this year, actually, but especially for this quarter and the last quarter.

So we will have some benefit.

And just for the investment tax credit side of it, what kind of number are we thinking about; KRW50b or a higher number?

No.

This is very complicated to calculate certain numbers.

I realize that.

It's hard for us as well.

Yes.

So, yes, we need more time and more effort to come up with the numbers.

So we didn't have such numbers at this moment.

Okay.

And do you think if the -- let's say all the major producers were running at 100% this quarter, do you think we would -- what do you think the supply/demand balance might be?

And that's just the five biggest producers, the rest of the guys are doing whatever they're doing now, so yourselves, Samsung, [AUO], [CMO] and maybe Sharp?

Hello?

Yes.

This is Y.H.

Jeong speaking.

Let me say the answer.

In Q2 in the -- in Q2 we think the average utilization in this industry for all the panel makers and all the Fabs are around 80% to 85%, which is tight supply than the demand.

So maybe I think it's more than 5%, but in utilization it could be better we think.

Okay.

So if it is 80% to 85% now and it went up to, say, 85% to 90%, you would think we'd be balanced.

And if it went up to 100%, then we'd obviously be in over-supply?

It's -- but currently there is from the component shortage in the industry, including the dry [YCM], PCB and other -- some components.

So also the -- still there are from the profitability issue support some suppliers.

So these are -- these factors are the limit -- the increase of the utilization fully we think.

So you think that 80% to 85% is the maximum the industry can support right now, right?

That's our -- the estimation.

That's your estimation.

Now the component shortages should work their way through, right, because that's just a matter of time, especially when you are talking about driver ICs.

There is obviously a time lag.

Yes, but these are getting better over time we think.

But also there is some -- another possibility is from the glass.

So it -- the -- it's the industry utilization is increased maybe it's higher than the expectation or plan.

So the -- some -- we understand that some glass suppliers cannot meet [the] current utilization increase.

So we think that there is not enough glass to meet the utilization increase?

Yes.

Okay.

[Well], with Q2, yes.

For Q2?

Is that a structural issue do you think, or just a temporary issue because --?

Well, for the glass, finished, it takes a long time to be the operation from the -- some (inaudible) and some [clause], so it usually takes -- I understand it takes [3] months, or for some cases 4 months, was after deciding the operations.

It takes a long time.

So it takes more than -- around the one quarter.

Okay.

Then do you think -- now, that's obviously not an issue in Korea because you guys are all running at 100%.

So you've secured all of the glass necessary to ramp up your facilities, and Samsung obviously has as well.

So do you think that's an issue in Taiwan then?

Yes.

For the Korean, we are -- I think the Korean makers' utilization [should be] in line with our original plan.

So the -- it don't make any problem.

So you don't expect that the glass shortage will affect any of your plans.

Yes.

okay.

And so, therefore, you must think that it will affect the Taiwanese.

Not necessarily.

There aren't very -- there is only the Koreans, the Taiwanese and the Japanese, right?

Yes, I don't think -- we don't want to mention specific names or a country or corporations here.

Okay.

But it's fair to say that you don't think that you will experience any problems with your glass supply?

Yes.

No, we don't --.

Yes, actually, as Y.H.

Jeong said, we actually maintain the high utilization rate than any other companies in Korea.

So the glass makers in Korea also they have maintained very well their components, and we won't have any problem at all.

Okay, understood.

Okay, that's great.

Very helpful, thank you.

Thank you.

Thank you.

The following question will be presented by Mr.

Brian White from Collins Stewart.

Please go ahead, sir.

Yes.

Just on the glass shortage, in terms of pricing, will glass pricing actually go up quarter on quarter, or will we just see a less of a severe decline versus the March quarter?

I understand your question, but it is not appropriate to mention about here.

So we -- actually, our direction for cost reduction is to cut every cost, including every major item.

So that is our direction anyway.

Okay.

And then when we look at units, or rather volume, in the June quarter, you gave us an overall volume change quarter on quarter which looks very strong.

Could you just provide more granularity on how that might look between TV, Notebook and then Monitor?

Yes.

Our -- actually, if you refer to our guidance actually, our shipments will increase mid to high 20s percentage across all items, including the TV and IT area also.

So it is just -- you can refer to the numbers.

If I may add something on that comment is it is quite a sensitive issue for LGD at this moment to specify the incremental volume during the second quarter.

But what I can recommend you is easier methods -- for you to do the easier methods, all the Gen8 incremental capacity is mainly for the TV.

And all the Gen6 extension is for the IT side.

So that is a simple rule of thumb for you to have some projections.

At this moment, unfortunately, due to the tight supplies, it is quite a sensitive issue to disclose specific numbers of the increase in each segment.

Okay, that's fair.

And what are your general -- just if you could provide some color on the TV market in terms of strength by size.

That would be 32 inch in under-strength that you expect in the June quarter versus a 42 to 47 inch strength.

Generally speaking, because of the economic recession many people say that 42 inch the [low] area is quite strong.

And another thing is that in Chinese market, China market because of a government support, that CNY3,500, that's normally covering 37 inch and below size.

Higher than 42 inch price is higher than that.

So to get the benefit from that government support that kind of size product is also -- the number can be increased.

And -- but our customers, when we look at our customer only, our customer only situation is a little bit different, because this year after first [full] quarter when I look at that, our customer market share in the 42 and 47, that area is continuously growing right now.

So our Company case is a little bit different with the worldwide market situation.

So that's our situation.

Okay.

And then if you could -- who were customers that generated more than 10% of sales in the March quarter?

Okay.

This is C.H.

Lee.

I will explain more detail.

And LG Electronics actually represented between 35% to 40% on a revenue basis.

And then [AmTran] is also around 15% on a revenue basis.

And also we have Philips.

Okay.

And that's for total revenue, or just for the TV?

Just the TVs.

Okay.

And do you have a total revenue number?

No, we don't at this moment.

Okay.

And just, finally, I'm not -- on the tax rate, what's a reasonable rate, whether it's a positive impact or a negative impact for the June quarter?

I think some of us have been using a 20% rate.

Is that reasonable?

Yes.

But, actually, our statutory tax rate will be around 24%.

But this year actually, as I said, there will be some tax benefit from our investment.

Actually, it will be up below 20%, I guess.

So, as I said before, it wasn't decided yet, so we need to -- more time and effort to calculate the exact number.

Okay.

And in the June quarter it sounds like there's a possibility you could be profitable.

Is that a reasonable statement?

We cannot say at this moment on the profitability wise.

So -- anyway, we were -- every -- just like every other panel makers we will make every effort to be profitable, but we cannot say at this moment.

Okay, thank you.

Thank you.

The following question will be presented by [Mr.

Varner] from Daiwa Securities.

Please go ahead, sir.

Yes, thank you for taking my questions.

My first one is on China demand side.

Could you give a little bit of color?

Out of your total TV panel shipment last quarter, how many percentage has gone to China?

Okay.

That regional shipment quantity I think that -- this is Kevin Choi from TV.

The regional expected shipment information, I think that it is not appropriate to release that information now.

Okay.

And basically my thought was like how China market you think that will grow for you in second quarter from first quarter level, given all these measures are -- government stimulus packages are there now.

Yes, China market --.

(Multiple speakers) the quantum on what is the quarter-on-quarter increase on the China market you are looking at in the second quarter compared to first quarter.

I think that the important issue here for us in China market is that we want to continuously support our customer in China.

And China market growth ratio is -- we are expecting this year China market growth ratio is around 60% level.

Then if our customer want to grow that kind of percentage level, basically, we want to support that, so that our customer can keep their market share in that country.

That's our basic position.

Okay.

Then a second one is the LED backlight.

Can you make some comments on what was the percentage of your Notebook shipment -- panel shipment you have done with the LED backlight on the first quarter?

And what is the status on the TV side?

Okay, this is Davis Lee from IT Marketing.

Notebook side is we are seeing this year about the 60% LED transition.

But, given that most of the new program or new product introduction is really based on the LED backlights in case of Notebook, so as we move on toward the second and third quarter more transition -- more rapid transition to LED backlight will happen in Notebook side.

And our -- the internal market share is also in line with that kind of -- a little bit bigger than industry the total transition ratio.

In case of Monitor, we are -- the last year and during the fourth quarter guidance, we explained that the Monitor market will also have LED backlights.

Time lag between the -- between Notebook and the Monitor side is about a year.

So that means the premium for the LED backlight is going to be reduced, so some time next year that so-called parity between [CSF fanlight] and the LED backlight might happen in some major model.

That's our expectation.

On the TV side?

TV side is just starting right now, so it's still too early to say.

But we think that we are just following the market average in percentage.

This year do you think that TV will account about 5% of the LED backlight for your TV panels, or it'll be lower than that?

Lower than that because this is just a new market, so still that market total volume in the market is not that big.

And it's a premium for TV sets right now, compared to even the highest priced [CCFL] model LCD -- [LED] TV set prices are still almost 40%, 50% higher price, so still there is a big price gap.

So I think that this year the number should be a very small number.

We are expecting next year, when the price gradually going down, then the volume will pick up.

On the Notebook, when you exit fourth quarter is it fair to say that it will be more than 70% of the LED backlight, say, average 50% for whole year?

Second quarter -- are you talking about second quarter 70%.

No, no fourth quarter, Q4, Q4 only.

Very possible, very much possible, since every new product development or new program which we are designed in is -- more than 95% is based on LED backlights.

So, unless it is quite necessary, all the Notebook panel already transitioned through LED backlight.

In case of some special category of products, the already LED transition has already happened.

That's fair to say.

Thank you very much.

Thank you.

The following question will be presented by Mr.

Andrew Abrams from Avian Securities.

Please go ahead, sir.

Just a couple of follow ups.

On the gross margin, I know it's a difficult issue.

I am trying to understand what you would consider the more sensitive part of the gross margin.

Would it be pricing on a panel basis, or would it be your cost structure, your ability to change your cost structure in order to keep your gross margins up?

Is one of those factors greater than the other?

Yes.

It will be -- the cost reduction is getting slower and slower, actually, considering current market situation.

But we think -- we now are trying to see more potential on the pricing side.

Got you, okay.

And, back to the LED backlight side, if you could just give a little color for the way that you are doing your Notebook backlights.

Let's use a 15.4 Notebook as an example.

I assume you're doing at least one light guide, maybe two light guides.

What's the total number of LEDs that you wind up with in a 15.4 Notebook?

I don't have the exact data with me now, but the -- again, as I explained you, the 15.4 cases already industry is -- industry is cross over.

I call it cross over.

To 15.6 and -- from [CCFL] to LED backlight already the cross over is happening now.

So moving on toward the second quarter, I think the LED portion is going to be higher than I expect.

Okay.

And, as far as LED production, are you doing any internal production, or do you expect to be doing any internal LED production during this year or next year, or is this all going to be bought in the open market?

I will pass that question to C.H.

Lee to answer.

Yes.

We actually are processing on three kind of methods to cope with the LED backlights sourcing-related problem actually, and not problem at this moment.

The first one is we are using the vertical integrated partner like [LG-Nortel], actually, so they also producing some kind of the Notebook used the LED the [further] actually.

And the other one where we produce internally some kind of the LED product using some kind of chip from Korea, which we have already some agreement to purchase in January this year.

So the third one is to have some strategic alliance with our -- the partners like some LED specialized companies.

So that is our -- the major method to source our panels at this moment.

And would you expect most of it to be sourced domestically for you guys in the part that you do outside of your own production?

When that actually happens would you expect it to be domestically sourced, or it really doesn't matter to you where it comes from?

Yes, actually, we are -- the -- actually, we -- the internal production will be happen in the overseas market.

Actually, we will be in China in Nanjing which we have -- where we have module plant.

So it will be produced overseas, actually.

So, yes, internal use will be some portion, but the portion will not exceed the internal -- the outside sourcing in Korea.

Right, thank you.

Thank you.

The following question will be presented by Mr.

[Jeffrey Soh] from Merrill Lynch.

Please go ahead, sir.

Yes, hi, good evening.

I just have one quick question.

I know you commented that for TVs, especially inventory, remains quite lean.

I was wondering if you could just share with us what you are seeing on the sell through recently of LCD TVs, I guess, in different regions.

I think recently there has been a lot of speculation or concern that sell through momentum is slowing down.

If you could share with us kind of what you are seeing recently, and then also how we should think about it going into second quarter.

And how do you manage or try to think about this particular risk issue?

Thank you.

Second quarter -- first quarter sell through in North America is much higher than our expectation.

Usually the North America LCD TV penetration is pretty high.

So normally people expect about lower than 10% growth.

But actually in January, February growth ratio shows almost 35% was higher.

So still the March, even though [MPD] data is going down, but still the MPD data does not include Wal-Mart, Costco and other mass merchants.

So, when we include that, we still expect that March the growth ratio is higher than 20% level.

So US market is -- the growth ratio is much higher than expectation and that's kind of making a big shortage in some US market retailer, the inventory situation.

And [Euro] market also originally, normally people expect about 10% growth ratio this year but, actually, January growth ratio is higher than 30%.

And still March is still higher than 20% level, so continuously outperforming compared to market expectation.

In China also, everybody knows that China market growth ratio is higher than 60%, almost 70% right now.

And even Japan market, you know that the LCD TV area in Japan is the most highly penetrated of the flat screen TV market.

And even Japan market normally people expect 5% to 6% level y-on-y increase, but first quarter increase is higher than 20%.

Actually, [JFK] data shows a 25% increase in Japan market.

So even (inaudible) market is also 80% growth ratio, which is showing right now, so first quarter is much higher than everybody -- compared to everybody's expectation.

Because of that, inventory level is much lower right now.

And I also can say that last year, November/December, TV manufacturer didn't buy enough panels because they want to reduce their ending -- December ending inventory.

So all the channels the inventory levels is very low in December, but January, February, March actual sell through number is much higher than expectation.

That makes the whole inventory situation very tight right now.

And the second quarter I think that if -- we already say that LGD is already fully loaded and [on] other Korean companies are also very busy.

And Taiwan company I think that about 85% -- it's between 80% to 85% operation ratio then.

Those -- from 80% to 85% to 100%, even though I think that they produce 100% still that can not cover all those inventory shortage difference.

So I think even end of June still inventory situation is not fully clear.

That's what I am thinking.

Okay.

And then just one follow up.

And if that's the case then in looking at this then, if we look at the whole TV market growth this year, I think people are looking for minus 5% to plus 10%.

But is it realistic to say that we probably can at least achieve high teens or a 20% year-on-year set growth?

Still I think that it's too early to say the whole of this year is the growth ratio of TV what percentage of the growth ratio.

But as you know I can say that y-on-y maybe it should be high teens.

That I think that, even though we didn't change our number yet, but sooner or later in the market I think that even our research company we announced that this high teen is kind of reasonable view I think.

Okay, great.

Thank you very much.

Okay, time is up.

And on behalf of LG Display, we thank you for your participation in our first quarter earnings conference call.

If you have further questions, please contact either myself or my colleagues.

Thank you.