LG Display Co Ltd (LPL) 2009 Q4 法說會逐字稿

Good morning and good evening.

First of all, thank you all for joining this conference call.

And now we'll begin the conference of the fiscal year 2009 fourth 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 fourth quarter earnings results by LG Display.

Good morning, good afternoon and good evening, everybody.

Thanks for calling into our conference call and having interest in our Company.

My name is Anthony Moon, Vice President and Head of the IR Department at LG Display.

On behalf of the Company I'd like to again welcome everyone to our global quarterly conference call.

I am joined here by my IR staff as well as Kevin Choi, Vice President of TV Marketing Department and Davis Lee, Vice President of the IT Marketing Department.

As just mentioned, before going to the Q&A I'd like to give you some brief highlights on our fourth quarter results and touch upon our outlook for the first quarter of this year and the rest of the year.

Moving right along to the second page of the presentation, it does show our disclaimer for this earning release and the conference call.

Please take a couple of seconds to look over the disclaimer.

Moving on to slide three and talking of -- excuse me, slide four, my apologies, slide four and looking at our revenues and profit.

Sales grew 2% Q on Q and 46% year on year to slightly over KRW6 trillion.

This sales growth was achievable due to the strong demand from our customers in the fourth quarter.

Note that our sales on an area basis grew 10% sequentially.

Operating profit came in at KRW357b in the fourth quarter.

The fall in profitability is mainly due to the fall in panel prices and the strength of the Korean won.

While our ASP on a per square meter basis fell a little less than 3% Q on Q, actual like-on-like panel prices fell closer to 5%.

The difference is mainly made up by an improvement in our product mix.

Now you note that our net income is higher than our operating profit in the fourth quarter.

That is mainly due to some tax benefits we receive from our CapEx and also some tax credit from deferred tax accounting.

Moving on to the next slide, please, on our balance sheet and financial statement.

At the end of the fiscal year 2009 we had KRW3.4 trillion in cash and cash equivalent.

Our inventory level fell 2% from the third quarter.

As demand from our customers continued to outpace our ability to fulfill those orders, our inventories did decline a bit particularly on the IT side.

Please take note that our inventory to sales declined again in the fourth quarter to 28%.

At the end of fourth quarter our finished goods inventory for large panels fell below 2 weeks, which is lower than the normal inventory level of approximately 3 weeks.

Our debt at the end of fiscal year 2009 was KRW3.9 trillion.

That equates to a net debt to equity of 6%, which is down from 9% in the third quarter.

Moving on to our cash flow in the next slide.

Our net cash flow was a positive KRW317b as we continued to keep our CapEx within our gross cash flow generablity.

Moving on to next slide on shipments and ASP.

During the fourth quarter our shipments increased 10% sequentially, as I mentioned, to 6.2m square meters, which is slightly better than our initial expectation at the beginning of the fourth quarter.

Demand continues to exceed our production capabilities in the fourth quarter and we continue to be slightly over 10% short of what our customers are demanding from us.

Our ASP decreased by less than 3% sequentially to $809 per square meter.

The fall in prices is again less than our expectations at the beginning of the fourth quarter.

As I mentioned just a minute ago, the actual like-on-like product prices fell 5%.

Again the difference being from the improvement in product mix, in particular, a higher portion of LED TVs on the TV side and an increase in the ISP technology proportion on the monitor side in IT.

Moving right along to the next slide on the product mix, you'll see that during the fourth quarter the TV segment accounted for 56% of our total sales, monitors 23%, the notebook PCs 17%.

Again you will see the increase on the TV side has been somewhat noteworthy in the fourth quarter.

Looking at our capacity on the next slide, our capacity did increase 2.4%.

But as I mentioned before our shipments increase 10%.

That is due to an improvement in our productivity as we continue with our program of max capacity and minimum loss.

Also we did reduce some of our inventory in the fourth quarter.

Now if I may move straight on to our outlook for the first quarter of this year.

We expect our total shipments to be similar to the fourth quarter in the first quarter.

Now if we take into account the normal seasonal nature of what first quarter tends to be, and that is normally a 10% decline in demand, having a similar expectation to the fourth quarter is quite good.

And we would like to believe that this is an indication of a potential change in the industry dynamic where the peak and valleys for LCD demand, or the seasonal nature of the LCD demand, is beginning to soften if we look on a quarter by quarter basis.

Looking at ASP we expect a slight increase over the fourth quarter and again that is somewhat unusual as well, usually prices do decline in the first quarter as well.

So this is again an indication perhaps that this is a potential beginning of change in the industry dynamic.

Lastly, our CapEx for 2010.

Whilst it states here above KRW4 trillion, now this is a kind of cash out basis.

I remind you up to now we've been providing CapEx on a delivery basis and we thought that is a bit misleading to the investment community, so we have changed that to reflect more of the actual cash that is being outlaid throughout the year.

So we've changed that to a cash out basis and it will be slightly above KRW4 trillion.

Now last year on a cash out basis, to give you a reference point, our cash out basis CapEx last year was KRW3.8 trillion.

I'll conclude my summary of the fourth quarter result and the outlook here and we'll open it up for questions.

Again I'd like to remind everybody, to give equal opportunity to all the participants in this conference call I would like to limit questions to three per person.

If you have more than three questions please contact our IR Department separately and we will be more than happy to fulfill your questions.

Operator, I'd like to open up the floor to questions please.

(Operator Instructions).

The first question will be presented by Mr.

Brian White from Ticonderoga.

Please go ahead, sir.

Yes, I've got a question on operating profits in the December quarter.

They seemed to come up a little bit short and I'm curious what that was driven by since sales rose sequentially?

In the fourth quarter the vast majority of -- our operating profit fell 60%, right.

That vast majority of that is from actual price decline of the panels itself.

That's the vast majority.

Roughly about half of the decline from third quarter I would have to say is from panel price decline.

Another big portion at the operating level is the FX rate.

As the won appreciates we do have greater impact from that won appreciation to -- on the operating level.

At the net level that is negated a bit because of our natural hedge from our US -- foreign denominated debt.

And the last small portion is mostly from our increase in SG&A.

Due to the low inventories kept by our customers there was some, I would perhaps call, rush orders or strong demand to fulfill to try to replenish some of the low carrying inventory.

As a result of that we saw some increase in our logistic cost as we were shipping more on an air basis rather than sea basis.

Okay, that's pretty big impact from price and FX.

Is there anything else that impacted other than logistics?

Well, I would mention that in that quarter, one-off basis cost, which includes the logistics cost and some other issue costs which happens on a normal basis.

I think the market is talking about some production issues, quality issues, but that's a normally recurring cost which happens every quarter and the fourth quarter was not extraordinarily high.

So what I would say is the one-off basis cost, roughly about KRW100b to KRW110b in the fourth quarter.

Okay, and when we look into the March quarter, how are we expecting margins to trend?

While we don't give earnings guidance per se, I can say with fairly good confidence that the first quarter operating margin levels will be better than fourth quarter.

Okay, and when we think about the Chinese New Year, what are you hearing about the Chinese New Year and what are you seeing in terms of order trends?

Kevin will perhaps provide more highlight on that, but from our standpoint right now, there is some inventory build for the Chinese New Year, nothing excessive -- nothing to the point where we saw last year during the national holidays for -- was it in October?

Right, the Golden Weekend.

I don't think the building inventory level is up to that level but they are building some inventory and it continues -- probably for our side, it will probably continue on until at least in the fiscal month, if not -- Kevin, can you provide some more highlights please?

Chinese New Year, actually the sales -- the peak season starts from the end of December and then it will continue actually to the middle of February because China Lunar New Year will start on February 10, until then, this whole -- about 45 days -- the big sales season I think, it will continuously increase the sales.

And actually, when I talked to the people from China, when I met them in Las Vegas, I actually met most of the China customers and they told me that first day, second day, third day of January sales is actually meeting their target.

I think their target, some companies, actually 100% YOY growth and some companies, 80% growth and most of them actually meet the target during that time.

So, I'm continuously checking about the situation but until February 10, I think that we have to continuously checking but actually, as of now, actually, it's on the right track so I think -- they think that it's okay.

And finally, are there any shortages of components right now?

Right now, it's not too excessive.

But with that said, I think throughout this year, much like last year, perhaps not to that extent, I still think glass will be an issue throughout the year.

Okay, and how is glass right now?

It's tight but not a shortage or how would you --?

I think that's a fairly accurate description of the situation.

Okay, thank you.

The following question will be presented by Mr.

Matt Evans from CLSA.

Please go ahead, sir.

Hi, good evening, the first question is on depreciation.

My understanding is that one of the old fabs drops out of the depreciation line in the first quarter so we get a decline in depreciation, is that correct?

Yes, that is correct.

Can you give us some numbers with that, please (technical difficulty) could you give us what you think the depreciation number would be?

Sorry, I hit the mute button.

It's roughly about 120 per quarter?

So the Q on Q decline will be KRW120b, is that what you mean?

Depreciation.

Yes, okay.

So KRW120b.

From the fourth quarter to -- the first quarter, you mean, yes, roughly about that much.

Okay.

And your guidance for the total decline in cost of goods sold, the square meter is low single digits, isn't it?

Sorry, Matt, let me clarify.

Actually the fall in depreciation is closer to KRW170b, my apologies.

Okay.

It seems that this implies the cash cost per square meter will not decline in the quarter, can you confirm that and elaborate on why that might be?

You have done your analysis, very good question.

In a relative guidance if you want to call it, we are keeping a fairly conservative stance on our cost reduction.

We have not -- when I say we keep it in a conservative stance, that doesn't mean cost reduction is not going to be realized.

In our guidance to the market, we are keeping a conservative stance.

We are still expecting on a quarterly basis, about -- internally that is, about 3% to 5% cost reduction continuing.

Okay.

And last question is on the capacity increase.

Is the -- I think 35% is the guidance, is that end fourth quarter to end fourth quarter or --?

Yes, that is more of an end to end.

For the average for the year, probably depending on when we start to ramp up our Gen 8 extension, I think you'll be somewhere between 25% to 30% for the year.

Now, again, that would depend on when we start to ramp, how quickly we will ramp -- ramp up the Gen 8 and that will be dependent on purely demand from our customers throughout the year.

We will be quite flexible in not only the schedule of the ramp but the speed of the ramp.

Okay, that's great.

Thank you.

The next question will be presented by Mr.

Andrew Abrams from Avian Securities.

Please go ahead, sir.

Hi, I wonder if you could just define ASP on a -- your guidance on ASP on a kind of like-on-like basis as you mentioned in the second quarter just so we have a reference point there?

Good question.

As I mentioned in the fourth quarter, like-on-like, 5%, while our actual fell less than 3%.

In the first quarter, we do expect some increase in prices on a like-on-like basis but because of our improvement in product mix, increasing portion of LED and I have mentioned the IPS on the monitor side and then we should see an increased portion of notebooks as well in the first quarter.

And mind you, if you look on a per square meter basis, if we go down the line, actually, notebook is higher than the monitor or similar or -- monitor is --excuse me, monitor is slightly higher than notebook and TV is the lowest in terms of square meter, but profitability is different of course.

So to make -- and I'm (inaudible) about but basically, I think we are -- ASP adjusting for improvement of product mix should be higher than what we expect on a like for like basis.

So this should be up on a like-on-like basis?

Yes, absolutely.

Okay.

And can you break down the CapEx a little bit for 2010?

You mentioned Gen 8, is there any China construction in your -- because you are doing it on a cash basis now, in your 2010 number?

Yes, we have built in some amount for our fab in China, that is included on our CapEx.

The vast majority of our CapEx does include -- it is accounted for by P8 extension, mind you, our maintenance CapEx is close to KRW1 trillion so that is also included.

Okay, so that is all built in -- all of those that you mentioned?

Right.

And would you expect your China status to be up and running early 2011 or are we over anticipating where you'll be?

I think you are over anticipating.

We are looking at the early part of 2012.

Okay.

I've hear rumors that ground was already broken so I had to ask the question.

I don't know where that came from, not yet.

Okay, all right.

Thank you very much.

The following question will be presented by Mr.

Ben Lu from Seligman Investment.

Please go ahead, sir.

Hi guys, thanks for this.

I have three questions.

Anthony, I just wanted to clarify on the cost down you have, 3% to 5% quarter over quarter from my calculations, your cost per square meter in Q4 was roughly, let's call it $700, maybe a little bit less, 5% down with probably gets that down to about $665 which is only about a $35 decline.

I'm just trying to figure out how much of that is caused by the depreciation and just to follow up on that.

And also, I was curious, in terms of the weeks of inventory that you are seeing built for Chinese New Year versus Golden Week, I think back then, you said Golden Week inventory build was about 8 weeks heading into it and obviously sell-through was really good so that all cleared out.

But just curious, how many weeks of inventory you're seeing for Chinese New Year?

And lastly, I just wanted to get a sense of 3D panels, whether the margins there are any different.

I know that for 3D TVs right now, all you really need is a timing controller and IR emitter.

But for panels, I know the only difference is, I believe, 240 hertz versus 120, but if you just took a 3D panel, is the margins and prices different from a traditional 240 hertz panel?

Right.

So regarding your first question, when I talk about cost down, what we call and I should clarify this, I apologize.

I'm talking about what we call internally, cost innovation and that is on a cash basis, and I'm not talking about depreciation, changes in depreciation.

Okay.

So it doesn't reflect the changes in depreciation when I am talking about cost down.

Now, with that said, I'm also referring to cost down on a won basis, so if the Korean won appreciates, we could see less than what we expect on a dollar basis.

Do you follow me, Ben?

And what was your FX, Anthony?

Average FX in Q4 and what is your assumption for Q1?

In Q4, it was 1170 and in the first quarter, we are looking at about 1130, for the full year, we are looking slightly below 1100.

As to your second question, how many days of inventory in the Chinese New Year, Kevin, if you could, please?

China's Lunar New Year preparation is actually inventory wise, I think that it's slightly higher than normal inventory, but not a huge inventory build up because December sales in China was also very strong so -- they don't have enough time to build their inventory at this moment, so they are just buying and selling and buying and selling, that kind of situation.

So I think that maybe end of January, we can check about their actual sales numbers and then we can actually calculate inventory because right now, actually, it's too early to say that.

With that said, our sense is that inventories have built up a bit in China but nothing to worry about, nothing.

As Kevin mentioned, things are going normally according to what everyone was expecting while they do have lofty expectations, those expectations currently are being met in terms of actual sell-through or purchases by the end consumer.

Only -- if I mention that some kind of shortage in model is actually the 32 inch model.

The 32 inch model continues to be -- we are receiving some additional orders, but actually, not actually satisfying all those demand so 32 inches, the size that is most, actually, a shortage they are having in China right now.

Regarding your last question about 3D, now, Ben, I think we have to lay down the ground work, the two different types of technology that is being developed, no, not developed -- marketed for 3D.

First is the shutter glass technology and the other one is the patterned retarder and the one you are referring to is the shutter glass technology and that is correct with the shutter glass technology and that will be -- probably the majority of the products being introduced at the beginning stages of 3D.

You are correct, it does require 240 hertz panels and that does carry a higher price and higher margins for us.

As to the degree of the price and the margin, it's difficult for me to go into at this time.

Okay.

And just to clarify, versus a non-3D enabled 240 hertz traditional panel, there is not much price to margin difference, correct?

Slight difference, there isn't much on the cost side, but it could be slightly different on the margin side.

Okay.

Thank you, guys.

If -- you understand what I'm saying.

Yes.

The following question will be presented by Mr.

Yair Reiner, from Oppenheimer.

Please go ahead, sir.

Thank you very much.

Just a quick question on pricing in the fourth quarter, you said that demand exceeds supply by about 10% and yet prices decreased a bit.

Typically we think of prices going up when supply is tight, what are some of the dynamics that caused prices to decrease in the quarter?

A very good question.

Now, it all differs by -- demand is always a function of at what price people are willing to buy at.

And when prices declined a bit, we saw increases in orders and while I say throughout the quarter, we were slightly deficient, the vast majority of that deficiency came in December.

If you look at the first two months of the fourth quarter, looking at October and November, I would describe that as where demand was declining because of the adjustment in inventories both at the fab level and at the retail level.

And so while overall, we were slightly deficient, we saw less of that deficiency during the first two months of the year so that is why we saw prices actually increase as we came into December.

Got it.

Okay.

That's helpful.

In terms of the market share dynamics, obviously, over the course of 2009, you were able to see a lot higher utilization than most of your competitors especially in Taiwan and in Japan.

Is the strong performance in 4Q in terms of utilization and the strong guidance for the first quarter an indication that the share shift continues to be going in your way or do you see this right now as being a rising tide that is lifting all ships?

I think there is some lifting of the tide some, as we go from the fourth quarter to the first quarter, overall market demand is, as mentioned, I think, as I mentioned, relatively flat Q on Q, and that is not just for us, I think the industry may be similar to that as well.

But as to ourselves, the market share gains probably will mitigate a bit until we start to ramp up our next Gen 8.

So in the first quarter, our market share, I don't see it increasing all that much, to be honest with you, simply because we are capacity constrained.

Okay, fair enough.

And my last question before I get back into the queue, can you update your market forecast for 2010 in terms of growth in overall LCD volume demand and also increases by different applications like TV, notebook, and monitors?

Thank you.

Okay.

The overall market, we expect to increase roughly about 20% in terms of demand, that is on a per meter basis, square meter basis.

We also expect supply to increase roughly about 20% as well.

So we expect to see -- be fairly in equilibrium in terms of the growth phase.

As to the different, the growth rates in terms of TV and IT, we do expect TV to be stronger in excess of 20%, on the IT side, I think growth will hover around the 10% level.

Thank you.

I'll get back in the queue.

Thanks.

Your next question will be presented by Mr.

[Olga Lovington] from Barclays Capital.

Please go ahead, sir.

Yes, hi.

Actually, this is C.J.

Muse with Barclay's Capital.

Thank you for taking my question and good evening.

First question, you just talked about expectations for the industry to grow about 20% on an area basis and you also, prior on the call, you talked about expectations for glass supply to be relatively tight and what do you think the potential upside is to that 20%?

And at what point does that get gated by the limited glass supply?

Good question.

I'm not sure I'm qualified to answer that question, it may be a better question to ask the glass suppliers.

But the last I heard is that glass supply is growing somewhere between 15% and 20% if I'm not mistaken and that may be updated in the weeks to come as the glassmakers' results come out.

But our expectation is that much like last year, glass will remain fairly tight, maybe -- I don't think to the extent because last year was quite severe especially in the second quarter and third quarter as well, glass shortage was quite severe.

I don't think we will get to that extent but I think the potential is -- now, the keyword there is the potential is therefore, glass continues to act as a bottleneck in the overall supply growth this year.

That's helpful.

And in terms of your projected cost down on a quarterly basis, what impact does this tightness in glass have on that or are there than getting pricing down on glass to hit those targets?

Or if we see flat pricing on glass, is that going to be a problem?

No, good point.

Now, as a single product -- as a single raw material in our building materials, glass is probably the largest.

But if you look at some of the -- it isn't the whole product, the only product.

So we're looking at cost innovations, not only internally but other components as well.

Now also what's happening is, as we move into new products, for example the LED portion this year will increase.

We've been talking about 3D, we're at the, I will have to say, the early stages of cost innovation on those products.

So when I say we are going -- we'll have a cost reduction of 3% to 5%, that includes some cost innovation, not only from the existing CCFL backlight -- back-lit panels, but also as we move into 3D and LED we'll be seeing higher amounts of cost innovation from those products.

Very helpful.

And then on CapEx, you've changed from delivery to cash and so I guess your prior guide I guess was about KRW3.5 trillion on a delivery basis for 2009.

Right.

Flattish, 2010.

With these new numbers that you've provided now on a cash out basis, has that changed at all?

Or --?

Right, good, that's a very good question.

No, not much.

So on a cash out basis we've always been looking at close to KRW4 trillion or slightly higher.

On a delivery basis it's still roughly about KRW3.2 trillion.

And with the China investment --

In 2009.

-- will get that consolidated into CapEx?

Or will that be viewed as just an investment that's not consolidated?

Because we will be the majority shareholder of that entity I would have to double-check with our accounting department.

But at this time I would have to say that will be fully consolidated because we will be the major shareholder.

Okay.

And so with the cash outlay that you guided to, is there potential for that to go higher with the pull in of China?

Or is that something that will move to 2011?

No, no.

The vast majority of the China CapEx will happen in 2011.

What we've captured for this year for the China portion is the initial groundbreaking stages.

So this year the cash outlay is for China is relatively small actually.

Okay.

Well, thank you very much.

Thank you.

The following question will be presented by Mr.

JJ Park from JP Morgan.

Please go ahead, sir.

Thanks for taking my question.

I just want to clarify depreciation expense, given that the P7 depreciation ended in the Q4.

At the same time the P8 extension line will kick in some point in the second quarter.

Right.

So how totally [concise] the depreciation is per quarter for the 2009 [and] if you could provide annual depreciation expense (multiple speakers).

Right.

On an annual basis, last year our -- do give me just one second please.

Last year our total depreciation was KRW28.4 trillion.

Trillion.

Two point, excuse me I'm getting confused with the comma placement.

KRW2.8 trillion.

We expect a similar level in 2010 overall.

(inaudible) depreciation expense it will significantly decline and the depreciation expense will move up starting from the second quarter.

(Multiple speakers)

Well, again, it depends on when we start to ramp the P8 -- excuse me, Gen 8.

And while we are -- we've made preparations for a potential ramp to start in the second quarter, we haven't made that decision yet.

We just prepare for that now.

Should do it in the second quarter we could see depreciation increase slightly from our current guidance, but, again, that decision has not been made.

Okay.

Second question.

Looking at the annual cost reduction in the past couple of years, I'm seeing that I've got (inaudible) 30% cost reduction.

In the 2010, as you mentioned, that you're going to have the LED in the higher products, is it safe to assume that the cost reduction for this year will be much smaller than what you achieved in the past couple of years?

If you look at -- right, if you look on a flat basis, if you look at a non like-on-like, if you take into account the change in product mix that's correct.

Potentially.

But when I say 3% to 5% I'm mentioning the -- I'm taking into account on a like-for-like basis.

For example, we may see slightly less cost reduction from our existing CCFL products, but an increasing cost reduction on the LED and IPS monitor side.

So that should contribute to a continued 3% to 5% on a like-for-like basis.

But, overall, you're correct because of the mix change you could see in accounting terms that our cost reduction is slightly lower.

That is correct.

But on -- to offset that our ASPs will be higher.

Okay.

So, higher by count because we may have a lower cost reduction that does mean that our margins would decline.

Actually I think our margins will increase because of this.

Okay.

Thank you very much.

Thank you.

The next question will be presented by Mr.

Dan Malkoun from Moore Capital.

Please go ahead, sir.

Hey, Anthony.

Just a quick question on the SG&A for next quarter.

What are you -- the -- because just given the ramp that you had back up to 7%, over 7% of sales, do you expect that number to come back down again in the first quarter?

Right.

I think we'll be -- we'll come back to normal.

We won't see the extraordinary logistic cost increase in our SG&A, we expect in the first quarter we'll come back to normal levels.

So normal is like 4% or 5% of sales?

Correct.

Correct.

Roughly around that area.

Roughly, okay, 4% to 5% of sales.

Okay, great.

Right.

And then if I look at just on the cash COGS, I think somebody was asking a question similar to this, but the cash COGS number was up 12% sequentially I think, if my math is right, in the quarter.

What drove that and the gross margin, what drove the gross margin down so much?

Because the pricing was only -- pricing was only down a couple of percent, right, like 2%, 3%.

Well our cash COGS actually from our calculation is much lower than 10% actually.

Closer to 8% in our calculation anyway.

Okay.

Right so (multiple speakers).

Maybe I've done the math --

Yes, what drove that is much of that is again because of our -- a lot of the price, price decline that you just mentioned on the product.

Also on an area basis again I don't want to but currency plays a factor because well, a certain portion of our cost is still in Korean won.

For example depreciation, labor, some portion of the raw materials is bought in Korean won.

So as the won appreciated on a dollar basis we still see that increase.

Okay, so from a gross margin perspective next quarter, if I just work through the guidance that you gave, it implies though that your gross margins would be roughly flat sequentially.

Is that what you're -- what --?

No, I would have to, again, without giving -- I don't tend to give earnings guidance.

But I'm fairly confident our margins, both on a gross level and operating level, will be better than fourth quarter.

Okay.

Okay great.

Thanks so much.

And then last question from me, just on the shipment guidance for the quarter, can you just break it down, monitor, TV, notebook?

Relative to the flat, is everything flat?

(Multiple speakers) Right okay, okay.

Or is one of those up or one of them down?

So TV we expect to be relatively flat overall and overall IT as well.

But within IT, if -- notebook should be slightly higher.

Okay, so notebook up slightly maybe and monitor down slightly.

Slightly yes.

Okay.

All right.

The two basically offset one another.

Understood.

Okay, thanks so much.

the following question will be presented by Mr.

Chun Tan from Nevsky Capital.

Please go ahead, sir.

Hi, good evening.

There's been news flow about Chinese TV set makers signing agreements with Taiwanese panel makers to buy panels, and I just wanted to get your thoughts on what you think the implications are for you as a panel maker?

I -- Kevin, please.

Yes, I think that since last year China company and Taiwanese company they are talking about how many panels they are going to buy from LCD makers.

But we always communicate same opinion because it's a worldwide free selling, free buy, so I think that anybody can talk to anybody to buy panels.

So it's nothing special.

So even last year they talk about that issue but actually the market share situation has not been changed anything.

Actually our market share in China is actually going up right now, so that doesn't actually give us any impact.

So I don't think it's kind of issue.

As a reference, our market share did dip below 20% last year and now we are, in the fourth quarter, our market share in China to Chinese set manufacturers has increased above 20%.

And in looking at our current forecast right now for this year - I don't want to go into first quarter -- but for this year we're looking to get to about mid 20% level in market share in China.

Okay.

Okay.

So I guess I suppose in your -- so discussions with the Chinese TV set makers, you don't see any change in the ordering pattern as a result of this, or anything like that?

No, no change.

Okay.

Just, second question is just on your CapEx.

So your CapEx of more than KRW4 trillion cash basis, what does that imply in terms of the capacity ramp up for your 8G fab?

I'm sorry, you mean in terms of capacity expense increase?

Yes, capacity increase.

Okay.

Depending on when we ramp up the Gen, our Gen 8 extension, our capacity increase this year will probably be somewhere between 25% to 30% for this year.

Depending on when we ramp, when we start to ramp and the speed in which we get to full utilization.

And we (multiple speakers).

And we will, yes, and we will be --

Sorry, what I meant was for your 8G fab, what will it be so like by year end on this basis of your CapEx guidance?

Oh, by total CapEx what portion will it account for, is your question?

No, it's more what the 8G fab would -- capacity would be when it's fully ramped up by the end of this year?

Can you give me just a second, please?

Sure.

Right now, again that's a difficult question to answer because we haven't determined how quickly and how fast we're going to ramp up Gen 8.

Now if a complete fab now, Gen 8 completely, completely, is brought on line it will be roughly about KRW120k per month.

I see.

Okay.

But does the -- I know that the pace of the ramp up will really be dependent on what the end demand is, but I know -- but what about the CapEx that you've allocated to it?

How much would that allow you to ramp up, assuming that demand is very strong?

If, let's say, demand is beyond our expectations, we could reach the level that I just mentioned by early next year.

Okay.

Okay, that's great.

Thanks very much.

the following question will be presented by Mr.

Vivek Doval from Boyer Allan.

Please go ahead, sir.

Hello there.

I have a few questions.

First of all, in terms of your rising air freight costs in Q4 did you rush orders?

I just wanted to get a sense what was the geographical location where these rush orders were coming?

And I think you already answered this question, but I just wanted to be sure that we will not actually see these rush orders again going into Q1?

That is question one.

Second of all, on your LED TV shipment forecast global, where do you actually see that?

And you also alluded to the fact that ASPs might actually even go up on account of costs.

Now are we likely to see a positive ASP impact from LED TV panels?

And, thirdly, of your own views on basically any industry over-capacity by probably the end of the year.

Those are very good questions.

Regarding your first question about the logistic, I don't want to point out one particular region per se.

Overall through set manufacturers, because much of our customers are global set manufacturers and we really don't know where those, when they turn it into a monitor or notebook or TV, where they end up.

But I would have to say it was fairly across the board from our major customers.

Particularly I would have to say, if I had to distinguish, to perhaps slightly higher on the IT side because the inventory levels they were carrying was lower than TV.

So, again, I can't give it on a particular region.

As to your second question on the LED TV shipment forecast, we are looking at roughly about 20% this year -- roughly about 20% to 30% of our shipments to be LED backlit this year.

Right, that is very useful.

And what would it be as a percentage, what -- how would you quantify the total LED TV market for 2010?

For the LED TV market there is many different kinds of opinion about that question right now.

Answer may be many different numbers, but as of now we think that the number should be higher than 30m.

And if there is no LED chip limitation then it may go up to 35m, but as of now we think it's between 30m to 35m.

All right, thank you.

Right.

And just the follow up question on that, do we actually expect an ASP uplift because of the LED proportion rising in the mix?

Absolutely.

LED TVs prices are higher than conventional CCFL, yes.

Great.

I think, and finally the question on the over-capacity, especially with the Japanese competition, competitor, ramping up capacity more in 2010, do you suspect that there might be an over-capacity as we reach towards the end of the year?

That's a very, very good question.

And I think the old -- old method in which we really looked at capacity and the impact of that on the supply demand, I think we, internally, are rethinking of how to calculate this.

Because, a big portion of now calculating the impact of future capacity and the existing capacity on supply demand is the impact of the utilization cuts that are taking place.

Note the fourth quarter, the early cut in production by our Taiwanese competitors in the fourth quarter.

So in that regard it's becoming a bit more difficult to gauge what will happen on the supply side.

But as we stand now, in our internal forecast, we are still looking at a fairly balanced supply demand throughout the year.

Because we see prices going up in the first quarter, I think there's going to be somewhat of a -- we'll be in a slight shortage situation in the first quarter.

And then we may see a slight stop sometime in the second quarter, but I think that will be short lived.

Second half, I think we'll go back to the seasonal nature where we will see, again, a shortage situation.

All right, thank you very much.

That is very useful.

(Technical difficulty) that answers your question.

It did, thank you.

The following question will be presented by Mr.

Avan Steven from CLSA.

Please go ahead, sir.

Hi, good morning.

It's Steven Fox from CLSA.

I just want to make sure I'm clear on what happened with your customer demand that you couldn't meet in Q4.

So you're saying that it -- you fell by about 10% short of what customers would have taken.

Are those orders still on the books for Q1?

And why wouldn't you see additional expenses related to those if you're also looking to be flat in the first quarter?

Thank you.

Good question.

Particularly on the IT side, and Davis may have something to add on this, some -- traditionally in the fourth quarter demand -- because demand falls they carry very, very low inventories.

There was some pick up in the demand side.

That's why they had to replenish some of their inventory.

Because the inventory levels have come up a bit, not to the exact levels that perhaps where they want it to be, that's why we think these, where we have to ship by air, will be reduced, because their inventories levels have increased from a very, very low level from the fourth quarter.

Davis, do you have anything to add on that front?

I think the -- even though we had a difficult year last year, but fourth quarter demand performance is, was higher than our expectation.

And that is -- every -- based on the conservative expectation but the results came out to be pretty strong.

And the going forward to first quarter, traditionally, as Anthony already mentioned, that first quarter demand level was usually about 8% to 10% lower than fourth quarter.

But this year we are seeing almost flat demand across IT side, and the same with the TV side.

But in spite of this kind of increased demand, the reason that we cannot supply more as the capacity limitation that we have, and the industry in general have, major industry capacity increase is not going to happen during first quarter.

So that could be my answer.

So just to clarify one quick point.

So does that mean that some of the Q1 outlook includes fulfilling some of the backlog from Q4 that you weren't able to ship on time?

Yes and no, because one time the -- if the industry cannot meet demand some of those demand is still alive and most of those demand is gone.

So it is very difficult how much percentage is the value of carryover from fourth quarter.

But what we see is the increased demand of 8% to 10% is not just the carryover developed from a fourth quarter.

It is a real demand increase that we analyze.

Understood.

Thank you very much.

the following question will be presented by Mr.

Brian White from Ticonderoga.

Please go ahead, sir.

Yes, I just want to go back, you mentioned on operating profits, about half of that shortfall was driven by currency, and I assume most of that's in SG&A?

No.

I apologize if I've misled you.

Half of that was from the price decline of the panel prices.

Roughly less than a third is from currency.

Okay.

So what explains the 61% increase in SG&A sequentially?

Again, that's mostly logistical.

Not only did we see -- we shipped more on an air basis, but in the fourth quarter we did see air rates, freight rates go up as well.

Okay.

I mean that's about $150m.

Seems pretty big for logistics.

Second thing is what, on the tax, what are we modeling for the tax in the first quarter and for 2010?

Yes, I think you can assume to go back to normal levels, somewhere between 25%, 30%.

25%, 30%.

Okay.

And then when we think about capacity coming on line, you said you wouldn't see it in first quarter, but we should think about it when?

In the second quarter?

At the earliest.

At earliest.

At the earliest, okay.

And what, in terms of glass pricing, are you still expecting flat glass pricing throughout the year?

I apologize.

That is an area that I cannot discuss.

I am sorry.

Okay.

All right, thank you.

The following question will be presented by Mr.

[Jack Shaw] from Macquarie.

Please go ahead, sir.

Yes, hi.

Good evening.

I just had two questions, both related to the strategy.

Number one, if you could give us an update on just the current update and status on some of your joint ventures, particularly with the -- some of these assembly or SI companies such as [D Rakan].

As well as I guess the recently announced venture with TPV and what is the thinking and logic for you to get involved with those guys?

And how it's going.

And then number two, also just an update similarly on the LED side, your relationship with LG Innotek, or your strategies on the LED chip and packaging side.

If you could share those kind of, what those are, that would be great, Anthony.

Thanks.

As to the relationships we have with TPV and AmTRAN, the thinking behind that is to have a co-location.

And from the very beginning of the design stage, work together to reduce cost, in that we can reduce a lot of the components and improve the time-to-market in terms of reducing the inspection time and what have you.

So that is the major benefit that we expect.

And that business model, what we call internally "M plus S" or module, which is us, and "S" is the set or the set manufacturer, we expect that business model to increase going forward.

So that's the major benefit that we're enjoying with both AmTRAN and TPV going forward.

Okay.

So is it fair to assume, I guess it -- I mean from what I understand it's been pretty successful, margins are good, etc., that if there's an opportunity to come up going forward it would definitely be something that you could extend this model to other partners you deem worthy or qualified as well?

We would have to review on a case by case basis.

And for me to say yes or no is difficult right now, but we'll -- we will study that depending on the customer and a case by case basis.

Okay, cool.

And just quickly on the LED, if there's anything you can share there?

As you know, Innotek will be one of our major suppliers.

We're also working with several other companies.

As of now we have six suppliers.

Okay.

For overall completely, including TV and IT.

On that front no major changes to be honest with you, other than what we've already announced already.

So Semicom will also be one of our major suppliers as well.

Okay.

Okay, great.

Thank you, good to talk to you again.

Thanks.

Good to talk to you.

The following question will be presented by Mr.

Yair Reiner from Oppenheimer.

Please go ahead, sir.

Thank you, my question has been answered.

Because of time perhaps we shall wrap up here.

But before I do I would like to -- there's one item which I failed to explain about our one-off costs in the fourth quarter.

And that is the actual -- some input costs for our P8 or Gen 8 that we did incur some costs in the fourth quarter to -- in building this facility and doing some test runs, if you want to call it that.

So that was another -- some one-cost item that was incurred in the fourth quarter as well.

Again, my apologies for not mentioning that when the questions regarding fourth quarter earnings and costs came up.

If -- because, again because of time constraint at this time, perhaps I'd like to end the conference call at this time.

If there is any further questions that you have, please feel free to contact myself or any of our IR staff and we'd be more than happy to answer follow up questions or additional questions that you have.

I look forward to meeting each and every one of you at a very early date and I think you'll be meeting many of our IR members, including myself, during our NDR in the weeks to come.

Again, thank you for participating in the call and hope to see you soon.