LG Display Struggles for Footing After LCD Forecasting Error Leads to Crisis

LG Display Struggles for Footing After LCD Forecasting Error Leads to Crisis

The chief executive of South Korea’s LG Display, Han Sang-beom, was determined to deliver a strong message when he appeared before 1,000 employees at the firm’s main manufacturing plant last spring.

So he donned a pair of goggles, picked up a hammer, and smashed a liquid-crystal display screen to bits.

The symbolism was impossible to miss: LCD panels, the company’s mainstay for years, were being relegated to the industrial dustbin. The company’s future would depend on a newer technology, organic light-emitting diode, or OLED.

“I’ve never seen him do such a thing,” said one company official who was present. “His performance showed a grim determination to weather this crisis.”

Yet LG Display’s predicament was in many ways one of its own making. Less than a year earlier, the company had showered employees with perks and bonuses as profits rolled in, driven by the company’s leadership in LCD screens for TVs, computer monitors and smartphones.

But LG Display had misread the market: Chinese competitors were coming on strong, and by early this year prices for LCD screens were plummeting. The fat profits of 2017 turned into big losses in 2018 – and the company abruptly announced in July that it would slash $2.7 billion in capital spending it had planned through 2020.

It did not reveal its total or previous targets but made about $6 billion in capital expenditures in 2017, according to Eikon data.

The company’s troubles stand as a stark example of the risks inherent in hotly competitive technology businesses that require massive capital investment.

“It seems that LG Display made a major miscalculation on its LCD business, not accurately judging the timing to pull away when they could see China’s rapid catch-up,” said Lee Won-sik, an analyst at Shinyoung Securities.

“We knew from last year LCD prices would go down but we did not expect this big and fast fall,” acknowledged one LG Display official, who, like others in this article, declined to be identified because he was not authorised to speak to the media. “Customers had been asking for price cuts, but we didn’t act until it got too late.”

Prices in free fall

LG Display posted five straight years of strong profits after Han took the helm in 2012, riding a tide of LCD screen orders from Apple and strong demand for both phone and TV screens from LG Electronics, which owns more than a third of the display-maker.

LG Display also began to invest in OLED displays, which unlike LCD screens don’t require backlighting and can deliver more natural-looking colours. OLED screens also consume less energy and can be bent and folded.

But the technology is expensive, and LG Display was earning the vast majority of its revenue from LCDs. Until its recent cutbacks, it was running eight LCD production lines in South Korea and another in China.

While LG Display hummed along, Chinese companies, led by BOE Technology Group, were pouring huge sums into LCD production.

By January 2017, BOE had become the No. 1 supplier of LCDs larger than 9 inches, according to market tracker IHS Markit, taking 22.3 percent of unit shipments versus 21.6 percent for LG Display. It was the first time a Chinese display maker had taken the top spot.

By early 2018, prices for many types of LCDs were in free-fall. Prices for 50-inch LCD television panels, for example, slid 32 percent in August versus the same month last year, according to IHS Markit.

LG Display’s big South Korean rival, the display unit of Samsung Electronics, had begun pulling back from LCD years earlier, shutting down older LCD production lines in South Korea beginning in 2010, according to a Samsung Display official. The company now has just two LCD factories in South Korea and one in China.

But LG Display was caught flat-footed and is now furiously slashing LCD capacity. It has closed three LCD production lines since last year and abandoned plans for a new one.

The company in April also rolled out an “emergency management system,” with employees being told to use cheaper flights and cut back on group meals, company sources told Reuters. Cash flow has become a concern: it was negative 838.2 billion won ($743.93 million) in the second quarter, according to Eikon data, and has been negative for three straight quarters.

Three company sources say the company is not planning layoffs for fear of losing talent to China, but some employees are frustrated with cuts in benefits.

“Executives are trying to keep the morale up, telling us media reports about a voluntary redundancy program are false,” a company source with knowledge of the matter said.

OLED a game changer?

LG Display is now betting the house on OLED, and says it can fund $17.6 billion in OLED investments over the next three years. It expects the newer technology to account for 40 percent of revenue by 2020, up from just 10 percent today.

As OLED becomes more prevalent, LG Display’s fortunes could turn, analysts say.

LG Display’s OLED panels have helped its sibling, LG Electronics, take the lead in high-end televisions. Some analysts believe LG Display has been pressured to supply those panels cheaply, hurting its profitability, though the company denies that is the case.

But the OLED market promises to be tough. Samsung boasts that it has been investing in OLED since 2005. BOE is getting into OLED too. There are also still technical challenges in making large-panel OLED TV screens that don’t wear out too quickly, noted Ross Young, CEO of research provider Display Supply Chain Consultants.

Son Young-jun, LG Display’s vice president of public relations, said in a statement that the company is the only producer of large-size OLED displays and had “unmatched technological expertise” in OLED. “The potential and outlook ahead is promising,” he said.

LG Display says its OLED division will turn a profit in the third quarter. It also expects LCD prices to stabilise, enabling it to squeeze profits from the older technology until the newer one matures.

“Given OLED is our answer and solution to the crisis, there’s nothing else we can do other than tightening our belts and pushing for OLED,” a company official said.


Periscope Gains 10 Million Users, StumbleUpon Struggles

The world of social media is in a constant state of flux. The platforms that were popular just a few years ago aren’t necessarily the ones people flock to today. Case in point, Twitter’s Periscope, which launched just a few months ago, has already gained more than 10 million users. Meanwhile, the once popular StumbleUpon is struggling to stay alive.

Read these headlines and more small business news in this week’s Small Business Trends news and information roundup.

Social Media

Twitter’s Periscope Amasses 10 Million Users in Just Four Months

Twitter’s popular live video streaming app hit a major milestone this month when it surpassed 10 million active accounts and 2 million users on Android and iOS. The live streaming app achieved the feat within just four months of its launch. Periscope published a post on its official blog to thank its users for making this success possible.

Is StumbleUpon Crashing and Burning?

The StumbleUpon concept was great, and it still is. But somewhere along the way something went terribly wrong. Once the darling of the social media world, the company is now struggling to stay alive as it is finding it difficult to get funding and keep its employees.

Mobile Technology

Microsoft Stores to Start Selling Vaio Tablets in October

Fans of the Sony VAIO PCs may be pleased to hear the brand will soon be coming back to the U.S., though not through Sony. The brand will be making its U.S. reappearance on Microsoft store shelves as well as online starting in October. Sony made the decision to sell the VAIO brand after a sluggish quarter last year. The brand was sold to Japan Industrial Partners (JIP).

Fix for Android Stagefright Bug Causes Phones to Crash

If you have an Android device, you are probably well aware of the Stagefright bug. Google, Samsung, HTC, LG, Sony and Blackphone handsets as well as the different carriers released a patch for Stagefright, but apparently it may not be enough.

Dell and Google Tout First Chromebook for Professional Use

A Chromebook is typically ideal as an access point to the Web — and your cloud storage — with the added benefit of a somewhat larger screen and a keyboard. Its use for getting a lot of work done however, is generally rather limited. Enter a new offering from Dell and Google.

Lenovo Unveils Mobile Workstation for the Heavy Duty User

Lenovo has recently revealed its newest line for mobile workstations aimed at high-end professionals. Don’t expect a run of the mill cloud computer out of these workstations. Instead, Lenovo is boasting heavy duty workstations capable of running major programs. And judging by the specs, these machines are beasts.

Verizon Trades Two Year Contracts for Monthly Billing

Being locked in for two years was basically the norm for mobile contracts, but the changing landscape of the industry is forcing companies to reassess this model. While T-Mobile and its brash CEO might have made the most noise with its Uncarrier marketing, others are following suit. Count Verizon as being the latest to do so.

Green Business

Your Next Leather Bag Could Be Made from Food Waste

Leather is an incredibly popular and durable material for a variety of different products. But creating animal-based products isn’t exactly an environmentally friendly activity. And other socially conscious customers tend to stay away from the material as well.


Biz2Credit Lending Index Says Institutional Lenders On Top

Small businesses continued to get most of their loans approved by institutional investors this past July, the most recent Biz2Credit Small Business Lending Index reports. Institutional lenders approved 61.7 percent of small business loans in July, up from 61.4 percent in June.

PayPal Acquires Mobile Commerce Company Modest

For a business owner providing the products customers want, making those products available in the easiest way possible is a priority. If a customer has to put in too much effort to make a purchase, they are more likely to walk away. This is what’s known as ‘contextual commerce’.


Bezos Defends Amazon Company Culture

By now, you may have heard or read the recent New York Times article shining a negative light on Amazon’s company culture. The report claims the company uses “purposeful Darwinism” to regularly purge employees. The newspaper characterizes this as an “experiment in how far it can push white-collar workers to get them to achieve its ever-expanding ambitions.


Sell Smarter Using Sales Intelligence Solutions

The article “9 Sales Apps to Help Small Businesses Sell Better” demonstrates how small businesses can sell better by taking the phrase “knowledge is power” to heart. Now, take your sales results to the next level by focusing your efforts where they’ll have the greatest effect.

The Best Sales Books for Small Business Owners in 2015

If you think that being successful in sales means convincing unsuspecting prospects to buy something they don’t want or need, you’re wrong. You’ll be happy to hear that the world of sales is so round that it’s gone through a full-scale revolution. Gone are the days of perceived pushing, cajoling, and arm twisting. Today, sales are about relationship, service, and support.

Small Biz Spotlight

Spotlight: Testbirds Harnesses the Power of the Crowd

Software companies have a complicated job to do. Before even releasing a product, they need to make sure it works properly and is actually usable for consumers. But as it turns out, the best resource for gaining those insights might just be the consumers themselves.


Junction 440 Attempts to Remake Detroit as a Tech Center

If you haven’t visited Detroit in awhile, you might be surprised by what you find there. The city was written off by many as a lost cause, particularly during the recent recession. But organizations like TechTown are looking to change that. TechTown is a non-profit organization that provides resources to Detroit’s tech professionals and entrepreneurs.

Technology Trends

The Real Barrier to Drone Delivery? Eagles!

If you’re a Philadelphia football fan — or Frodo at the end of “Lord of the Rings” — you love the eagles. If you’re James Rennie, you probably don’t. Rennie is an Australian entrepreneur who uses drones to create maps.

Yahoo! Small Business is Becoming Luminate

Business owners who use Yahoo Small Business services may have noticed an email from Yahoo. The company recently announced that their small business program will soon be “reborn” as Luminate,  and become a part of Aabaco Small Business.

Image: Small Business Trends


Line, the Biggest Tech IPO of the Year, Struggles to Show Its Growth Plan Can Work

Line, the Biggest Tech IPO of the Year, Struggles to Show Its Growth Plan Can Work

In delaying its IPO by two years, Japanese messaging app company Line Corp bought time to correct weak financial reporting controls, work on its business plan, bolster staffing – and left billions of dollars on the table as its valuation shrivelled.

Line’s initial public offering in the next three weeks is set to raise about $1 billion, which given a global drought of such deals could make it the biggest tech listing this year, but sceptical fund managers point to tepid growth in Line’s home market and doubts about its prospects for regional expansion. They also question whether its advertising revenue strategy will work.

In seeking to earn more from its major Asian markets of Japan, Thailand, Indonesia and Taiwan, Linewill try to generate more revenue from services such as advertising and offer more localized products, its IPO filing said.

The bulk of Line’s revenue comes from games and sales of emojis and electronic stickers, including Brown the bear and Cony, his flatulent rabbit girlfriend.

“Localisation of the service, of the marketing, of the stickers that we provide – this is very important,” CEO Takeshi Idezawa told Reuters in April.

Fund managers who have watched Line’s growth slow in a crowded global messaging app market assess the plan with caution.

“I’m not interested,” said Yasuo Sakuma, portfolio manager at Bayview Asset Management, which manages JPY 270 billion ($2.64 billion). “Its growth outlook is very poor.”

“Among the four countries that it’s focusing on, only Indonesia has big room for growth in use,” he added. “Even there, the business outlook is not that easy.”

Growth in Line’s monthly active users has tailed off after tripling across the world over the past three years. Last year, user numbers rose just 13 million to 218 million at the end of March, the IPO filing showed. The company isn’t providing much visibility about the future either – it says in its filing that limited operating history makes it “difficult” to forecast future results.

Globally, Line is the seventh-most used messenger app, data from researcher Statista shows, behind the likes of Facebook’s WhatsApp and Tencent’s WeChat.

Earthquake aftermath
The company will fix its IPO price range on Monday. There is no change to the listing’s schedule following Britain’s vote to leave the European Union, a Line spokeswoman said on Friday.

The dual New York and Tokyo listing, set for July 14-15, would value Line at about JPY 588 billion ($5.75 billion) and make it the country’s largest listing since Japan Post’s $12 billion offering last year.

Line’s likely valuation is far less than the $10 billion-$20 billion that was expected by investors when South Korean parent Naver Corp previously talked of a Line listing in 2013-2014, although Line may not have had much choice but to wait.

Line declined to comment, citing a media blackout period ahead of the IPO.

Line’s messaging app was launched as NHN Japan in the aftermath of Japan’s 2011 earthquake and tsunami to overcome downed communications, growing unexpectedly to become the country’s dominant mobile messaging platform over the next few years.

However, in that period, it identified what it described in its IPO filing as “material weaknesses” in controls over financial reporting.

Line has now tightened board and management approval for major transactions, it said in its prospectus, and crafted a strategy focusing on Japan, Thailand, Indonesia and Taiwan, which account for more than half its users.

Line has also bolstered staff numbers by recruiting over 750 workers between December 2014 and March, its IPO filing shows, with designers and engineers among the recruits. It has around 2,540 full-time employees.

Pushed as value play
Idezawa, who became Line’s chief executive in March last year, has been key to tightened procedures, a person familiar with the matter said. Idezawa is known for his strictness on compliance-related matters, the person added.

Idezawa was previously chief executive of internet company Livedoor, joining that company a year after it was hit by a high-profile 2006 accounting scandal.

“When Line was first seriously considering an IPO around 2013, the overall company was pretty disorganised,” said a person involved in the IPO. “It was very much still a venture in terms of mindset. So a lot of people were hired to strengthen the company.”

Line has pitched its IPO to investors in terms of value and steady returns instead of explosive growth potential.

While that story has been met favourably by Japan’s risk-averse retail investors – Tokyo brokerages including Daiwa Securities say retail investors have shown strong interest in Line shares – fund managers are wary of Line’s ad-driven growth push.

“I went to the company’s meeting with investors… but nothing moved me,” said a fund manager at a major Japanese asset management firm who declined to be named because of company rules against discussing individual shares. “It’s not clear how it can make money out of its advertisement business.”

© Thomson Reuters 2016

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