LG Display Co Ltd (LPL) 2009 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 begin the conference of the fiscal year 2009 third quarter earnings results by LG Display.

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 2009 third quarter earnings results by LG Display.

Good morning, good afternoon, good evening, everybody.

My name's Anthony Moon, Vice President of the IR Department.

I'm joined here with my staff, including John Kim, who heads up the IR Department.

Also Kevin Choi, Vice President of TV Marketing Department, and Davis Lee, Vice President of the IT Marketing Department, also joined us for this conference call.

Please allow me roughly about five to 10 minutes to go over third quarter results and, as the operator mentioned, we'll open the floor to any questions you may have.

But before we go into the presentation itself, please take a minute to look at the disclaimer on the second page.

I would like to remind everyone that the second quarter results on this slide are unaudited and based on consolidated Korean GAAP.

Going straight ahead to the revenue and profit slide, on slide three.

Sales grew 22% Q-on-Q and 55% year-on-year, to KRW6 trillion.

This was mainly driven by the strong sales of IT panels and TV.

They respectively grew 26% and 20% Q-on-Q.

Operating profit came in at KRW904b in the third quarter.

The rise in profitability is mainly due to the rise in panel prices and increased shipments.

Note that our ASP on a per-square-meter basis rose 12% Q-on-Q, while shipments grew -- rose 13%.

While operating margins came in at 15%, our EBITDA margin expanded to 28%.

Looking at our balance sheet and financial ratios, as of September 30, 2009 we had KRW2.7 trillion in cash and cash equivalents.

If you look at our inventory levels, while it increased a bit, the ratio to sales, that's inventory sales, actually declined slightly from 6-point -- excuse me, increased slightly from 6.6% to 6.7%, pardon me.

And in the third our debt as of -- excuse me.

Our debt as of September 30 was approximately KRW3.6 trillion.

Net debt to equity fell to 9% from 15% in the second quarter.

Moving right on to the cash flow.

Mostly thanks to the improvement in our profitability, you'll see our net cash flow was a positive KRW359b (sic - see presentation).

Again, while working capital did increase, that was more than offset by the improvement in our profitability.

If I may move straight along to slide six and looking at the shipments and ASP, during the third quarter, as I mentioned, the shipments increased 13% Q-on-Q to 5.66 square -- excuse me, 5.6m square meters, which is better than our initial expectation.

Demand continues to exceed our production capabilities in the third quarter and we were roughly around 20% short of our customers' demand.

Our ASP increased by 13% Q-on-Q to $833 on a square meter basis.

Again, that is higher that what we had initially expected as well for the third quarter.

The rise in prices is mainly due to, again, the strong demand from our customers.

Moving to slide seven, looking at the product mix, you will see that TV still represents the majority of our sales, accounting for 55%, followed by monitors at 22%, notebooks at 19%.

The increase in notebooks, that was the one slight surprise that you may see, that notebooks did increase slightly more than expected as well in the third quarter.

Going on to our capacity, looking at our capacity, increased about 10% Q-on-Q as monthly input glass still at the Gen 8 facility increased to almost 110,000 and the Gen 6 extension improved to almost 57,000 monthly glass input.

Despite the tightness in several components, we were able to run at almost full capacity throughout the third quarter.

Next slide, please.

Now, looking at our guidance for the fourth quarter, we expect our total shipments to increase somewhere in the high-single-digit level.

In particular, we expect TV demand to remain relatively strong, especially during the first two months of the quarter.

On the IT side, we think set manufacturers are keeping relatively conservative inventory levels and we've already started to see some softness on the prices on IT side.

With that said, ASPs we expect to gradually decrease during the quarter.

Again, as I mentioned, we've already seen some softness in the IT side but we expect TV to remain fairly strong, at least in the first part of the quarter.

Our cost of goods per square meter or cost side we expect to be similar to third quarter.

That's mainly due to the increased portion of LED TVs.

And on the operating level, won appreciation does have an impact on our cost structure.

CapEx for 2009 total, if you recall, we were guiding between KRW3 trillion to KRW3.5 trillion.

We think it will be very, very close to KRW3.5 trillion for the year.

Now, before we go into the Q&A session, I would like to make one request to our participants.

In order to give as many people as possible equal opportunity to ask questions, I would like to limit each person's questions to three, if I may.

I would appreciate your understanding and your cooperation on this front.

Thank you.

Operator, if we may go into the Q&A session, please.

(Operator Instructions).

The first question will be provided by Brian White from Ticonderoga Securities.

Hi.

I've just got a quick question on the pricing environment for the fourth quarter.

You talked about a gradual decline.

Maybe you could define that.

And also, what markets do you expect to see greater pressure, look at PC, notebooks and TV?

Okay.

This is Davis Lee from IT Marketing.

Overall, the pricing pressure is stronger -- downward pressure is stronger in IT side.

Within the IT segment, monitor, the price pressure is stronger than that in notebook.

That's my quick answer.

On the TV side, Kevin Choi will answer.

TV side, the fourth quarter, we think that until November TV market demand side is still okay.

So I think that after December maybe oversupply may be coming.

So until November TV market should be fine, and then after December is normal seasonality.

Okay.

And could you talk a little bit about the golden week in terms of TV demand?

It sounded fairly strong.

If you could just walk through your thoughts on the golden week for TV demand.

Yes.

Regarding the golden week sales, I think that that week was very hot in sales.

So total TV in China sold during the period, I think LCD TV is around - we are gathering the information - is about 2.6m LCD TV.

That's actually bigger than our expectations.

And October our total LCD TV sales in China we expect more than 3m, so actually that's more than our expectation and that trend will continue until next year Lunar New Year sales.

So we are gathering -- we are actually receiving more order from our Chinese customer.

So until November, actually, we are not supplying enough quantity for our Chinese customers.

So our Company internally, still we are experiencing some shortage situation.

Okay.

And finally, could you talk a little bit about glass pricing in the December quarter?

You mean in the fourth quarter?

Yes.

As to glass pricing --

Versus the third quarter, will glass pricing go down?

Are you going to buy glass at a lower price than you did in the third quarter?

Unfortunately, that's difficult for me to mention at this time.

Given -- what I will say is given the situation in the fourth quarter, where we'll probably start to see demand start to fall off towards the second portion of the fourth quarter, I think the supply/demand situation for glass will improve towards the second half of this quarter.

Okay.

Thank you.

The next question will be presented by Matt Evans from CLSA.

Hi, good evening.

Yes, so three questions.

Firstly, on the fourth quarter guidance for shipments, could you give us some color on how much IT will be versus TV?

And secondly, on the China side, when would the inventory build begin for the China Lunar New Year?

Would that be in January or December, or possibly earlier?

And then, on the cost side, you mentioned that the won's been strong but your cost guidance is in dollar terms.

So I'm wondering if perhaps what you mean is that the yen costs are going up in dollar terms.

Yes.

Hi, Matt.

It's Anthony here.

Let me answer your last question first.

Our labor and depreciation are all based in Korean won and we give our costs -- cost of goods sold on a US dollar basis.

So that is the portion I'm talking about, the won portion of our costs.

Okay.

And it is roughly -- it can be anywhere from 25%, 30% of our costs at any given time.

Okay.

And then I also mentioned about the increasing portion of LED, if you recall.

That is another reason.

Right.

That is the cost to manufacture LED at this point in time still is higher than the conventional LCD TV.

And if I could just follow up on that, that's a wash with the prices, presumably?

Absolutely, absolutely.

Absolutely, absolutely.

Now, going back to your first question, you mentioned the difference between IT and TV, you were talking about the growth.

Shipments in the fourth quarter, yes.

Let me start with the IT side first.

We are expecting about 10%, roughly, plus/minus, depending upon the situation about the growth compared to previous quarter.

The reason behind the increased shipment in spite of the downward price pressure is actually, compared to last year's situation, there is a demand from the customer.

But only the issue is they are worried about the inventory situation.

That is why the situation is quite different.

So we are seeing increased demand in -- especially in notebook and stable demand in monitor side.

So we are expecting a growth of shipments during the fourth quarter compared to previous quarter.

Okay.

So, just to clarify, the shipment number is 10% plus or minus?

Plus/minus, yes.

Okay.

So the TV number would be slightly lower, to get a blended number of up high single digits?

TV number is actually a little bit higher.

Let me clarify a bit.

What Davis meant is that the notebook demand is okay, monitor demand is probably softening a bit, but we do expect TV demand to be stronger.

Of the blend, TV is higher.

Okay.

All right.

So it sounds like you're taking a lot of market share in the IT segment this quarter, then, because I doubt the market will be up.

Possibly.

Are you able to give any color on where the customer -- which new customers is driving that or are you taking market share with specific customers?

We cannot disclose that kind of -- the market share by customer, sorry.

Okay.

Thank you very much.

Your second question, about the inventory.

Inventory level in China, you want to hear about when China is building inventory to prepare for the Lunar New Year sales, right?

Yes, yes.

I think normally, China customer, they gradually increase from November.

October, actually, they just finished peak sales.

So October, actually, they are slightly decreasing, but from November they start building up their inventory.

So I think that December is the most important month for them for building inventory, and then maybe the latest is actually second week of January.

Until second week of January, they are maximizing their producing, so -- production, so until late November to second week of January is the time they are preparing for the peak sales.

Because even Lunar New Year is February, but actually January sales is also very strong in China.

So they have to start building up their inventory from the later part of November, to meet all the demand.

So, because of that, actually, China market TV panel demand is very strong in fourth quarter.

Okay.

That's great.

Thank you.

The following question will be presented by Andrew Abrams from Avian Securities.

Please go ahead, sir.

Thank you.

I wonder if you could talk a little bit about the percentage of your shipments that are going into China, or third quarter, and what you expect in the fourth quarter.

And also, I'm not sure, I know you didn't make any comments on this call, but I think on the -- on last night's call you made some comments on construction for the Chinese fab that you guys have talked about.

I wonder if you could talk about the approval process and where you are in that cycle now.

Normally, I'm not disclosing my customers' share or my shipment information to my customers, so I don't know how I can explain to you the ratio of my shipment to China.

But what I can tell you is that our shipment volume in third quarter and fourth quarter to China market is -- maybe I can say that I'm continuously increasing my shipments to China market, because next year January, February is really, really important season for our customers in China.

So we actually try our best to support the volume to our customer.

So I think that, compared to third quarter, our shipment to China is about 40% more than the third quarter volume.

So that's actually the number is -- we are supporting the China market.

Okay.

And where are you guys on the China fab story here?

Right.

I think you saw our disclosure where we are trying to build an 8G fab some time in 2012, or exact date hasn't been set yet.

But we still do need approval of the Korean government and we're hopeful that we will get it fairly soon, hopefully within this year.

Within the 2009 year, you're talking about?

Yes.

Oh, okay.

And is there any more color that you can give us on inventories in China, now that we've gone through golden week?

And I realize this is kind of like an in-between period before they start to build for the lunar holiday.

Do you have any kind of color on where you think inventories are at this point?

China market inventory is -- because of sell-through number was better than expectation.

So, actually, local Chinese companies, they actually sold their TV without actual inventory.

That means that they accept order from customer and then the customer is waiting about one week to receive their TV, because they don't have inventory to deliver that TV to customer.

So that's current inventory situation.

So I think that their inventory is below their actual normal inventory level.

So some customer is worried about that after they accept order they have to deliver the product within one week, but if they do not have inventory one week later then maybe the delivery -- the schedule they cannot meet.

So that's current situation.

Would you be shipping by air in order to fill those inventories quickly or are you --?

No, no.

Because most of the product in China which we are supplying, actually, we are building our panel in China.

So we have module factories in Guangzhou, so we have module factory in Guangzhou and Nanjing.

So our module is actually shipped out from our China factories, so there's no air shipment or something.

It's all inland trucking.

So you're shipping to that factory bare-bones panel parts, is that correct, and --?

Like the cells from Korea.

Okay.

Right.

And does that factory keep inventory or are you just shipping on a daily basis?

Daily basis, because our inventory is also lower than our normal inventory.

So China customers' inventories is all lower than their normal, our inventory also lower than normal, so there's no other way to improve the delivery schedule.

So we just daily ship.

Great.

Well, thank you.

The following question will be presented by Mr.

Jeffrey Toder from RBS.

Please go ahead, sir.

Thank you.

Good evening.

First question.

I think you gave some general CapEx guidance for 2010 in the meeting this afternoon.

You said it would be flat or roughly the same level as 2009.

Is that correct?

Yes, that's correct.

And does that number include spending for the China fab or not?

No, it does not.

Mind you, the China fab will be a joint venture, as mentioned in the disclosure.

Now, that JV, the proportion of that CapEx will be self financed by the JV.

You'll make an investment in the JV, the JV will then borrow money and then it will finance through that?

Correct.

Correct, okay.

And we don't know, of that, the KRW4b that you disclosed yesterday is only -- is the total amount of CapEx that will be put into the facility, is that correct?

That's what we estimate to build 8G facility in China.

Build the 8G facility in China, okay.

And will the size of that 8G be similar to what you'll have in Korea, say, by that time?

Sorry, Jeff, but that I can't talk about at this time, unfortunately.

Okay.

So will you be consolidating the subsidiary?

As we will be the largest shareholder, it will fall under consolidation rules.

Okay.

So then -- okay.

So then the CapEx actually will hit your CapEx numbers?

Right?

That's the normal way it works.

Okay.

On a consolidated basis, yes.

Yes.

And you've always reported under a consolidated basis.

Right, right, right.

Okay.

That's very helpful.

Let me see.

Shipment growth for fourth quarter, you're looking at up high single digits.

Where is that coming from?

I thought that you'd mostly ramped up the amount of capacity that you were adding in the third quarter already.

No, we're still ramping a Gen 6 extension.

And also we got a small improvement in the new Gen 8, if you recall, in the third quarter.

So that will be -- those two will be fully operational, fully ramped, during the fourth quarter.

Okay.

So your expectation for quarter-end capacity for both the 8G and the 6G extension?

Well, you saw our numbers.

At the end of -- in the third quarter it was a total shipment of 37-point -- if I remember.

I saw your full numbers, but you don't -- I didn't get the details yet, only --

Was 8.1 in the third quarter, so --

That is the total amount.

Right.

So expect that to increase in the high single digit in the fourth quarter.

And that will mostly be from P8 and P6, yes?

Yes.

Excuse me, P6E.

Right.

Okay.

Got it.

And okay, a slightly different topic, dividend payouts.

Obviously, at the beginning of the year, it looked like it would be a tough year, but actually it looks like profitability's coming pretty nicely.

What are you thinking about your dividend policy this year and maybe next year?

Let's see what the fourth quarter turns out to be.

We haven't really made a decision on that front yet, because we're still looking at our cash flow for next year.

I still believe we will have some free cash flow this year and next year, but let's see what that amount comes to before we decide on what kind of dividend we'll be paying out.

Okay.

And just one final question, just a clarification from the afternoon meeting.

Jeff, Jeff, Jeff, I asked for three.

Did you give any more specific guidance on (multiple speakers)?

Jeff.

Jeff, we have to give other people equal opportunity.

If you can give me a call later.

Okay.

Thanks, Jeff.

All right.

Thank you.

The following question will be presented by Mr.

Pranab Kumar Sarmah from Daiwa Securities.

Please go ahead, sir.

Yes.

Thank you for taking my questions.

I have a couple of questions on new product line.

Could you give us a little bit of color on what you expect on the LED TV to account in 2010 on your total productions, and how much of that chip supply you have already secured?

Your question is next year our plan for LED?

LED TV backlight models.

What would be the percentage of TV panels for next year using that (inaudible) LED backlight?

And for that, how many percentage is already secured shipment you have for chips and how much percentage still you have to really look for outside?

We have not finished our business plan yet.

So I cannot tell you exact number right now because our business plan is still preparing state right now.

So -- but what I can tell you is that chip -- today, the afternoon, when we have IR, I explained that we expect next year's total TV -- out of total TV market, about 20% will be LED TV.

And definitely our Company's target for LED is higher than 20%.

So -- but the issue -- as you said, the supply issue of LED chip, I think that, LED chip, we've been preparing our supply chain for LED so we have a very good supply chain already built up.

So I think that, whatever situation happen, we can have enough LED chips to supply enough volume to our customer.

Is that enough answer for you?

Yes.

With that, like from LG Innotek, do you have any particular allocation process, like LG Innotek, how many percentage of total requirement will go and how many percentage you might outsource from your --?

None that I could divulge, unfortunately, but it will be one of our suppliers, yes.

Okay.

And secondly, on the LED TV -- 3D TV side, what is your development plan on the panel side?

And when do you think that 3D TV will penetrate on the market?

3D TV?

Yes.

I think that next year, sometime, 3D TV will be introduced in the market.

So I think that many companies now preparing the 3D TV, and we are also preparing our panel for 3D TV with -- jointly work with our customer.

So I think that maybe set-makers are now preparing their set and I think that decision is their decision, so I'm not sure where -- which company and when they want to introduce in the market.

But I think that this year CES Show, I think that maybe when CES Show comes, then they will maybe announce that, when they are going to launch that TV.

But I expect that next year -- middle of next year, or sometime, I think that major TV companies will launch the 3D TV.

The production cost of the 3D TV panel, versus 2D TV panel, is there any differences or it will be quite similar?

That I don't think I can tell you right now.

It's too early to actually tell you.

Okay.

And my last question is on the touch panel side.

There are a lot of smartbook will probably launch next year, and some of the smartbook might need touch panel.

What is your development of a touch panel on the notebook area?

Yes.

We are developing various technologies, in-cell type and on-cell type.

But in case of on-cell type, we are working with a lot of the touch panel vendor.

But, eventually, we do believe in-cell type of development will be the major portion in our strategy.

Yes, we are working on it.

And when do you think that your in-cell panel will be hitting market?

There is a lot of the fine-tuning process, compared to the on-cell type of the technology.

So, I don't know exact date -- exact time of in-cell technology, but early in-cell technology will appear in the market sometime middle of next year, I guess.

Mid next year, okay.

So that means that mid next year you have a lot of new products coming up, like in-cell technology, potentially, 3D TV-related product, and obviously LED TV will also probably ramp up quite significantly from middle of next year, it looks like.

Yes.

That's the general outlook, yes.

Okay.

Okay, thank you.

The following question will be presented by Mr.

Dan Malcolm from Moore Capital.

Please go ahead, sir.

Yes, hi.

Just a clarification on your fourth quarter shipment guidance.

I apologize, but can you just walk through it?

So, it's high single digits overall.

IT, overall, you're saying is 10% sequential growth, and then TV will grow more than 10%?

The -- let me clarify the -- one more time.

IT side is -- I got a little bit confused about the total number with my IT number.

But the IT side, I would -- I have to say it is high single digits.

Okay.

So, IT overall is high single digits, and then TV is how much?

TV is higher than 10%.

So, like 15%?

I think that you can say mid tens.

I'm sorry?

You can say mid tens.

12-teens?

You want to talk about one hour?

Yes, okay.

So that's fair.

And then, within IT --

No, what I can tell you is that still there is some kind of possibility of ups and downs in fourth quarter for TV, because still we just finished that China is golden week sales.

So, now I think the customer side will also calculate their inventory situation and their sales forecasts (inaudible) maybe one more time.

So I think that there is a possibility for more order can be coming in.

And also, I think that recently the Japan market and also US market, I think that the market weekly data, when I check it, are still pretty good signs.

So, if that kind of situation continue, I think that there may be some possibility of upside also.

So that's why I'm saying that I think that mid-range is the right number.

Okay, that's fair.

And then, within the IT, the high single digits, is monitor and notebook, they grow similar?

I would say the notebook is higher.

Okay.

And monitor still grows, though?

Yes.

Okay.

And then, did you say that your Chinese shipments -- your shipments into China will be up 40% sequentially in the fourth quarter?

Yes.

Okay.

And it could be more than that, depending on where we are on the inventory situation?

Yes.

But as I told you, that until November my capacity is fully booked, so I have no other additional capacity to increase the supply.

On the December side, I think that if there's more order coming in, then we have to consider that.

I see.

And so, then, when you look out at your order book, out past November, you get into supply/demand balance with your customers, past November in China, is that correct?

Yes.

So, normally what I can say there is that, compared to industry average, our TV sales are actually stronger, so a little bit stronger than others.

Understood.

And then, last question, I think you guys have spoken about, and a lot of people in the industry have spoken about, the actual inventory level on a week basis in China being in that -- somewhere in the 8, 10 or 12 range, going into golden week.

Do you have a sense as to where that inventory number is overall, not just for you but overall for the industry, for LCD in China, post-golden week?

Dan, I think that I need about one more week to calculate that, because it just finished, so --

Understood.

-- still I'm considering the information.

And what do you guys think is normal?

Like, what would a normal week level be?

It actually is -- each company is a little bit different, kind of, their operation level.

So I think I cannot tell you one exact number, this is the average or not.

But I think that, right now, I think it's about one week, about one -- my -- just guessing.

Next week, maybe, I can calculate it one more time, but right now I'm guessing about one week shorter than their target inventory.

Okay.

So you think it's about one week below the target.

And that target number is roughly what?

Some companies eight weeks, some companies actually nine weeks, so --

Oh, okay.

So maybe it's down to like seven or eight weeks, versus eight to nine.

Yes.

Okay, great.

Thanks so much.

Appreciate it.

The following question will be presented by Mr.

Yair Reiner from Oppenheimer.

Please go ahead, sir.

Hi.

Thanks for taking my question.

Could you elaborate a little bit more on how the US and European and Japan channel inventory looks for TV, going into the holiday sales for November and December?

Thanks.

You want to hear that -- can you repeat one more time?

Just how the channel inventory is looking for, say, the US, going into November and December?

How do you think it will turn out?

November and December.

When I check about inventory situation of US, August actually the inventory level was -- July was actually inventory -- in July, inventory was actually normal inventory, so balanced situation.

And August the inventory was a little bit higher, but I think after end of August and September start inventory level is going down again.

So I think that, as of now, I think the US inventory level is only slightly short, right now.

Okay.

Switching over to -- you were talking about selling cells over to the module JVs in China.

How does selling cells affect the overall business in general?

Could you explain that?

Oh, no, no, no.

Those are our module factories.

Oh, right.

They're our module factories.

The only module JV we have is with Amtran.

Oh, okay.

Those Chinese module factories mentioned earlier, they are all wholly owned by ourselves.

Okay.

So that doesn't affect your ASP per meter squared (multiple speakers)?

No, no.

No.

Okay, great.

And do you have any comments just on the LCD industry in general?

When we look at just how many people want to build Gen 8 fabs in China, and we look at all the Gen 8s that's been built this year and will be built next year, including you guys, it really seems like supply/demand is going to be really -- unless my calculations are really off, it will be pretty off for the next -- quite a long while.

Is it that our demand expectations are too low, or do you think that certain players will be forced to back off due to financial restrictions?

How should we think of that?

Right.

Ours will be built post-2011, 2012, if not later than that.

I think most of the other people who want to come into China will also be after 2011 as well.

If you -- what we did was we took an analysis saying, let's say most of the companies do build a Gen 7 or a Gen 8 in China.

They will probably account for roughly 11% to as high as 14% of the global capacity, the volume that is built there.

So the potential -- what you mentioned, potential of oversupply in China, I would say the risk is not all absolved but, for us, we're not building the capacity only for China.

Part of what's built in China will be exported as well, whilst the Chinese market is the largest reason we're going in there.

But also, 11% to 14% of the global capacity, if you look at the overall Chinese market and the way it's growing, I don't think it's too excessive.

I see.

It seems like capacity will be growing at like high-teens CAGR for the next few years.

Do you think demand will exceed that, so we're in oversupply?

Right.

If you think of building something in China, on top of what is already planned, then I would probably agree with you.

But for -- again, I can't speak for other companies, but for our case.

So at that time, if we didn't build something in China -- because we do expect the market to grow, on average, 15% per annum over the next five years, if we didn't build something in China, we probably would have built something somewhere.

So it isn't China plus something else.

Okay.

And, again, it can be -- we still think China can be a great export base as well, for other markets.

In three or four years' time, the potential is India becomes a huge consumer market for LCDs.

Right.

I guess I was just trying to think of their LCD TV market getting saturated over the next few years, and not being able to sustain that 15% CAGR.

Well, if you look -- one of the analyses we did is, if you look at the penetration of LCD TVs per household, globally, it's still under 20%.

And if you look at -- compare that to the color TV market, I would reckon it -- that compares to back in the early 1970s for color TVs.

I see.

So, while on a percentage of total TVs sold, yes, LCDs now account for, what, almost 60%, if not more.

But as a percentage of penetration per household, it's still quite low.

That's another interesting story, because two years ago, when we check about the Japanese market situation, Japanese market, everybody knows that (technical difficulty).

I'm sorry.

Hello?

Yes, hi.

The Japanese market, normally, people say that the penetration ratio in Japanese market is -- LCD is almost -- everything is flat TV.

There is a small PDP, but almost, except the PDP, you cannot find out any CRT TV in Japan market.

But still, household penetration is still not higher than 50% -- still below 50%.

Then, Japanese market right now this year, actually, YOY growth ratio in June, July, August, if you look at it, it's higher than 30% growth.

So I think that if -- normally people think that [the CAGR] is gradually, gradually going down, but in some case, actually, we see on Japanese market is very strong demand also, right now.

So we are still thinking that there is more opportunity next three years.

And the growth rate of next three or four years will be -- still be higher than 10%, and around 15%, what he's saying.

And also, area-based, continuously the big screen size portion is going up, so I think that that will also make the area base grow.

So I think that I don't worry about suddenly this TV market will -- growth ratio will decrease.

Right.

You're not -- are you assuming overall TV growth, growth in (inaudible) as well, or is that just like normal GDP growth?

Sorry?

Sorry, I missed that.

Total TV sales, including everything, is that including -- is that going to grow -- do you think that's going to grow significantly as well, or is that just (multiple speakers)?

Total TV growth is actually -- is not -- the percentage of growth ratio in total TV, including CRT, PDP, the growth ratio is not high.

But we think that, within those total TV, LCD portion will continuously grow.

So that portion will be maybe -- continue to grow and hit higher than 90%, something, next few years.

So I think that that will continuously make LCD TV is average growth ratio.

So I think that that is -- another three or four years, the growth ratio, I think that it should be fine.

Okay.

Thank you very much.

The following question will be presented by Olga Levinson from Barclays.

Please go ahead, ma'am.

Yes, hello.

Thank you for taking my question.

This is C.J.

Muse.

I guess the first question is I'm trying to reconcile your comments around seeing strong TV demand, at least through the end of November, with what we've seen in panel press the last four to six weeks.

So I guess maybe you could help me understand how to interpret that.

Is it customer mix on your side?

Any help would be very helpful.

You mean price?

Well, we've seen 32-inch panel prices, for example, down $15, $20 in the last four to six weeks, yet you're saying TV panel demand is going to be strong, exiting end of November.

So I'm trying to reconcile those two data points.

I don't know where you got that price information.

But actually, if you look at some research companies, the price forecast -- that research companies' price forecast for fourth quarter, October, November, December, gradually, gradually going down.

But, up to now, our Company case, actually our prices, no changes.

So it depends on, I think, the different company situations.

Okay.

So where, today, are you quoting 32-inch panel?

I cannot release you my price information.

Okay.

It was worth a try.

I guess second question, on golden week demand.

My impression was that the inventory built up was about 4m units and I think, earlier in the call, you said sell-through was around 3m.

Is that enough?

Is that -- to have China come back and replenish their inventory?

Thoughts there would be very helpful.

Yes, I think that the current supply -- until second week of January, I think that this kind of situation will continue.

So I think that maybe -- China, maybe after February, after February, end of the sales finished -- Lunar Year sales finished maybe middle of February, after middle of February, we have to watch it.

Until Lunar Year -- or lunar holidays start, I think that companies will build up their inventory.

They will buy the panel to hit their target sales volume.

So the important thing is after Lunar Year holiday -- lunar holiday sales, if the sales result is not good, then maybe after middle of February they will reduce their purchasing quantity and they will adjust their inventory.

But I think that until that time, I think that the customer will just follow their target plan.

Then, I guess my last question, it sounds like TV brands are launching new models earlier than normal next year.

I guess, A, do you agree with that assessment?

And B, if that's true, how do you think that impacts typical seasonality for panel demand?

Does that soften the down-tick in Q1 or not?

Still, each customer's new model launching schedule is different, so some companies are a little bit faster, some companies are a little bit later.

So, first, I think that the trend is actually a little bit faster, so that actually a little helps the seasonality.

So that trend is actually positive to the demand side, actually.

Great.

Thank you for your help.

The following question will be presented by Mr.

Ben Lu from S & W Seligman.

Please go ahead, sir.

Hi.

Thank you for taking my call.

Just three questions here.

One clarification.

I think earlier you said that some of the TV set-makers' inventory was one week below normal; some of them are at eight weeks, nine weeks.

But then I think, Anthony, you said earlier that some set-makers had literally no inventory, because they were taking orders without any inventory on hand.

Can you clarify those two comments?

It seems to be very different.

No.

What I'm saying is that normally company -- if you are a Chinese manufacturer, a Chinese TV company, then you need the panel -- you keep some inventory of panel normally one week or two weeks before actually you put it in the production line.

And then, after you actually start producing the TV and then you also keep some minimum inventory.

And also, the delivery lead time for -- because China is a big country, right?

So, if you are a local Chinese company, it takes longer time to go to all the small cities, so it takes long, actually, lead time.

So they need to calculate from panel inventory side to the actually set inventory in the small city, their warehouse also, right?

So, total inventory -- the whole lead time is actually pretty long.

And what I am saying, one week short, is that out of those total SCM chain, I think that -- currently, I think that they are about one week short.

So that means that in their retail shop inventory situation, they don't have the inventory when consumer comes to their store, I want to buy this TV.

And they say can you wait one week, then I'm going to receive TV, so I will deliver next one week.

Then you come back one week later and pick up this TV.

And they just receive money first, and their delivery schedule is one week later, something like that.

So that's happening in China right now.

Okay, got it.

And then just to -- as a follow-up to C.J.'s question, it sounds like inventory build into golden week was about 4m sets.

You said golden week sold about 2.6m for golden week and 3m for October.

So that leaves us with about 1.4m sets after golden week.

And if you take the run rate of the rest of October, we're only talking about maybe 0.5m TV sets sold per month.

That still seems like there's quite a bit of inventory out in the channel.

And based on also the fact that Chinese New Year is late this year, why do you think that Chinese TV set-makers would want to continue to replenish inventory until then?

Your calculation, actually, I'm not sure.

But your basic calculation method, I need to maybe spend more time to understand it.

But anyway, November should be smaller than December, right?

But November, actually, our side, we have very strong demand for other country also.

So I think the China market, November and December, December is bigger than November, so I think that gradually, gradually, they are increasing their purchasing volume.

So, right now, after October sales, I think that October and November, December, they are gradually, gradually increasing their purchasing quantity.

Okay.

Got it.

Because the math that I had was 4m was inventory, you sold 2.6m during golden week, which is October 1 to October 8, but you expect the entire month of October to be 3m.

So that means that October 9 through to end of October you're only selling 400,000 TVs.

So, if you have 4m sell in --

No.

That calculation is -- what I'm saying is the minimum, minimum.

So, when you actually calculate it from after that golden week to end of October, the actual number is just people's expectations.

So actual number what I'm expecting is -- should be a little bigger than 3m.

But what I'm saying is that they already sold out 2.6m right now, so next -- until the end of October, minimum 3m I think they can achieve.

(Multiple speakers).

Got it.

Okay.

And then, my last two question is on your LED and your China fab.

I know your Board had approved the China fab.

Can you clarify a little bit about what exactly is needed for the Korean government to approve it, in terms of what they're looking at, what the timeline is and what are you waiting for?

And the other question on LED is I know at the Analysts' Meeting you had said that 2010 LED penetration will be 30% next year.

You guys obviously want to be more than that.

Can you give us a split between edge and direct?

Which one do you think will be more mainstream in 2010?

Edge type -- direct and edge type sales portion?

Yes.

What do you think will be more mainstream?

Do you think that edge-lit will be more mainstream, or direct?

Let me put it in this way.

Direct type is actually -- picture quality is better.

So, if you are really, really focusing on picture quality, then you want to buy direct type LED TV.

But direct type LED TV cost is higher than edge type, so definitely you have to pay more.

So I think that, direct type portion versus edge type, definitely edge type is much bigger than direct type.

So, direct type portion should be around 10% to 15% and edge type is around 85% range.

So, edge type is actually volume (inaudible), but direct type is actually high-end model, best picture quality.

So I think that, if you are the set-maker, that you want to promote direct type as your best, best model and edge type is actually a reasonable price that you can buy.

That's two different approaches.

Okay.

And when will you have your edge type out?

We just introduced our edge type 42/47 in September, so we are now continuously shipping out.

And then, edge type 55 and 32/37 will start shipment from this December.

Then, end of December, I think that we will have all the direct type and edge type ready.

So that's our current situation.

Ben, as to the Chinese facility and approval, it's difficult to say really, because it's in the hands of the Korean government right now, and of course their major concern is about technology transfer.

So while we are hopeful it will come soon, as to that timing, it is very, very difficult to say at this point.

Okay.

Now, I just want to clarify about the Chinese inventory and the numbers that you calculated - 4m, 2.6m being sold and then you still have about 1m.

Now, under our forecast, on a quarterly basis, anywhere from 5m to 7m on a quarterly basis is LCD TVs are sold in China.

So you can tell the inventory has come down quite a bit in China, relative to the sales that happen on a quarterly basis.

Got it.

And then, I have one last question.

Can I ask it?

Please.

The photo-alignment technology from VTech, is that exclusive to Sharp or is that a technology that you guys are looking to potentially adopt as well?

Oh yes, I know what you are talking about.

We looked at that.

Because we use the IPS technology, my understanding is that that technology does not work very well with our IPS.

Now, with that said, that doesn't mean that makes their costs better than ours.

In our analysis, we've -- because of IPS, we've done other things to make our cost structure just as good as whether we use that technology or not.

Unfortunately, because of IPS, we can't -- it's not workable.

Got it.

Okay.

Thank you.

The following question will be presented by Mr.

Vivek Doval from Boyer Allan.

Please go ahead, sir.

Hello there.

I actually have a few questions.

First of all, when you actually look out into 2010, I wanted to get your understanding of when you project what the supply and demand growth would be, and where do you actually think the pricing will be brought for IT products and for TVs?

For the full year, we expect demand to be somewhere about 20% growth.

Capacity growth will probably be at similar level.

Now, with that said, we think second half of next year will probably be in a shortage situation.

Demand will be stronger than supply.

First half, that will probably be the reverse.

As to the degree of what kind of price fluctuations we have, it really depends on the industry and the amount of production cuts that we go through.

And I would like to think our industry will go through some amount of price -- excuse me, production reduction, probably some -- in the first half of next year, much like what you saw at the -- earlier this year.

Right.

Thank you very much for that.

And I just have one more question, and this is to do a bit with the TV market for next year.

When you project it, when you actually say that about 20% of the TV -- the LCD TV market next year would be LED enabled, presumably that is replacement demand.

And if we actually assume that the trend growth within the LCD market is probably 15% to 20%, so should we think about the trend growth of 15% to 20% plus 20% for replacement demand?

Oh no, no, no, no, I don't think so.

Are you -- I am sorry if I caught your question wrong, but are you saying 15% plus another 20% growth for LED?

I would say it sounds very high.

I agree with that.

But when we actually think, or rather when you actually think of the LED market, are you thinking more of it as replacement demand or are you thinking of new demand coming in places like China?

A little bit of both, but I think a bit more on the replacement side.

I think overall the LED market -- excuse me, LCD TV market will still grow about 15%.

Of that growth, we think 20% of all LCD TVs sold this year will be 20%.

Right.

Thank you very much.

That's very useful.

The following question will be presented by Mr.

Brian White from Ticonderoga Securities.

Please go ahead, sir.

Yes.

I just have a question on the other expense in the quarter.

What is that?

Other expense?

You mean in the non-operating side?

Exactly.

We -- there are several claims and litigations going on.

If you recall, at end of last year we settled with the Department of Justice in the US about pricing.

And in correlation with that and other claims being conducted, including the claim from the EU, we did provision $177m at this time.

Now, many of these cases are in the early stages of the judicial process, so it's very difficult to say how much it will come out.

But at this point in time, we determined that we need to set aside about this amount, $177m, to take care of some of the litigations that are in progress right now (multiple speakers).

Okay.

And just going back to the China LCD TV for the golden week, obviously very robust, I think a lot of people had thought there would be 2.5m to 3m units shipped for the golden week.

So how was 2.6m kind of above expectations?

To me it sounds like it's kind of at the lower end of expectations, which were very high.

I don't know the market -- yes, I don't know what the market was looking for.

We were looking for somewhere between 2m to 2.5m, so 2.6m for us is up, but I don't know the answer to that question.

The market was looking for 2.5m.

I guess it was within what the market is expecting.

Well, that's the problem.

That's why a lot of people are asking about inventories in China, because I think expectations started to get very high.

Obviously it was very strong, but I think it started to get very high and 2.5m to 3m was the kind of numbers that people were talking about.

Yes.

I don't know how those numbers come, but we thought it was a very good golden week.

I think inventories -- by the nature of the sales, inventories have more than halved, so they are slightly lower than what would be even a normal situation.

Now, what Kevin was talking about is now more and more sales are going to the rural area.

So what you are having is the supply chain for the inventory channels getting longer and longer.

So what is now -- what was normal last year is very different from what is normal inventory number of days now.

Okay.

Because of the extended delivery time.

Okay.

The structure has changed.

Right.

Just I want to be clear on the pricing.

You say you think pricing goes down through the first half of next year, is that correct?

First half next year, we expect an oversupply situation.

We do expect prices to be soft, yes.

To that degree, it's difficult to say at this time.

And when did PC monitors start to go down in price?

When did you first see that?

Monitor side, we are seeing some price decline this month.

And the notebook side, it is -- some customer request a reduction, but the other customer ask for more volume, so I would say notebook is quite stable.

Monitor side, we are seeing some softness at this moment, starting from this month.

Got it.

Thank you.

And the first half, the bottom is -- first half is -- half of next year is too wide, so that means within the first half the bottom will happen.

I don't know.

We don't know for sure at this moment whether it will be end of first quarter or middle of second quarter, if I clarify.

Okay.

Thank you.

The following question will be presented by Mr.

Jeffrey Toder from RBS.

Please go ahead, sir.

Hi.

Thanks for taking a couple of quick questions at the end.

Just following on from one of the questions earlier, I guess about the China fabs, would it be fair to assume that as we go into 2012 that the majority of your additional capacity will be in China, or do you plan to build in both China and Korea?

No.

I think your first comment is correct.

Okay.

Great.

And then, just on utilization rates, basically running -- you mentioned before that you are running at full utilization or very close to full utilization.

Right.

You talked about demand starting to wane towards the end of the quarter.

Do you have plans to reduce and what are you thinking about kind of first quarter?

Well, good question.

It all depends on what our customers are demanding.

If our customers start to rapidly control their inventory towards the end of the quarter, we have no other choice.

We are in no position and we have no desire to carry large amounts of inventory ourselves.

Okay.

So it sounds like, from what you were talking about, market-wise, in the first half, that the industry including yourselves will be bringing utilization rates down to, I guess -- and to stabilize prices to some extent.

Is that a fair way of thinking about the market?

Your first comment, you said that -- the desire is not to control prices per se.

It is to meet our customers' demand and to work in correlation with them.

I wouldn't want to put the goal on trying to control prices.

May I --?

For example, if our customers say okay, we are going -- we need to cut -- our end sales have been reduced by 10%, we need to cut 10% orders, then we will probably follow in locked step.

But to do less or more to try to control prices, that's unlike -- that's not our objective.

But that kind of brings up the anomaly that we are seeing right now, which is that you are running at full capacity, you seem to see that there are shortages with your customers, yet prices are falling.

Again, as Kevin and Davis mentioned, especially on the TV side, I know you are hearing for the industry there may be a problem for some of our competitors.

But for us, from the TV side in particular, we have yet to see from our side prices fall, yet.

Okay.

And then, as a final question, there has been obviously some movement in the Korean won.

You talked about that before.

And the weakening of the won was an important factor, not the only factor, but was an important factor in changing the cost competitiveness in the industry about a year ago, when the won weakened versus the NT dollar.

There is a lot of discussion about increases in interest rates in Korea and what-not, and that could lead to a higher further appreciation of the won.

Are you doing anything to hedge, or anything on the currency side, to prepare for an appreciation of the won?

Not very much.

We do a little bit, but no, we are not overly aggressive in the FX market, to be honest.

The LCD industry itself is risky enough for us.

We don't -- we are not overly active in the hedging.

Okay, great.

Thank you very much.

Operator?

Yes, sir.

If there are no further questions, perhaps we could -- in the conference call, but if there is more questions on the queue, I will answer a couple more.

Okay.

Sorry.

Going to finish this conference call.

Are there any more questions on the queue?

Okay, okay.

Operator, if there is more -- no other questions, perhaps we can end the conference call now?

There are three people who are waiting to ask questions but --

Oh, okay.

Thank you.

-- all those people are just ones that already asked about several questions before.

Let's take these three and perhaps then we can end the call.

Okay.

So are you going to just (multiple speakers)?

Yes, I will take the three questions.

Okay.

The following question will be presented by Mr.

Matt Evans from CLSA.

Please go ahead, sir.

Yes, hi.

I just had one question.

I asked you this before, but I wanted to ask again in light of your guidance.

It seems that, based on what you are saying about shipments in the fourth quarter, there is a good chance, better than 50% chance, that you will overtake Samsung in terms of market share.

Does it concern you what their reaction might be to that?

We haven't really thought about that, to be honest with you.

Okay.

That didn't come into our consideration.

Would you care to guess whether that will have an impact on the way they think about [their business]?

No, I'll step -- I'll sidestep that question.

It's purely based on our customers' requests.

Okay.

All right.

Fair enough.

Thanks.

Thank you.

The following question will be presented by Mr.

Dan Malcolm from Moore Capital.

Please go ahead, sir.

Yes, just one quick follow-up.

Are you guys planning on temporizing or cutting your production at any point during the fourth quarter?

Potentially, as we get towards the end of the quarter, depending on what, as Kevin mentioned, the industry goes -- our customers go through their regular inventory correction, depending how steep that is, if need be, yes.

Again, we have no plans to stock up on inventory towards the end of the year.

Okay.

So the current plan is that you would work inventory down during this quarter, is that fair?

No, our inventory is already fairly low.

Okay.

So we (multiple speakers).

For TVs, we are still a week below normal.

I would reckon on inventories probably stay where they are or [is up].

Or maybe go up?

Slightly, maybe, but not too much.

Okay.

So if they are going to go up too much, you will cut production for the quarter?

Right.

Got it.

Okay.

Thanks so much.

The final last question will be presented by Mr.

Yair Reiner from Oppenheimer.

Please go ahead, sir.

Just a couple of housekeeping questions, if you will.

Did you mention your capacity conversion factor for the quarter?

No, we -- I did not.

70, mid-70, mid-70, mid-70%.

Okay.

And did you provide any specific shipment or ASP percentage growth numbers by TV or notebook or monitor for the quarter?

Well, for the quarter, it's mid single digit.

IT will be somewhere around that range and TV a little bit higher than that.

Oh, for the third quarter?

No, I am sorry.

For third quarter, pardon me.

Yes, did you provide those numbers?

Yes, absolutely.

TV grew 14% and on the IT side it grew roughly about 12%.

Shipments?

Shipments, yes.

Okay.

And -- okay, great.

Overall shipments up 13%.

Okay.

Thank you very much.

Thank you.

Good.

Thank you, everybody, for participating in this conference call.

If there is any follow-up questions or if you didn't get a chance to ask the question you wanted to, please don't hesitate to give us a call at the IR Department or feel free to shoot off an email.

I look forward to seeing and talking to each and every one of you in the near future.

Again, thank you very much.