On Friday, LG Display Co., a major LCD screen supplier to Apple and other consumer electronics manufacturers reported its quarterly earnings for the period ending September 30th.  The display component manufacturer reported its first quarterly profit ($144 million) in more than a year, coupled with a 21 percent increase in revenues. It further forecasted continued profitability based on expected high shipments in supplying customer demand for smartphones and tablet computers.

LG’s new profitability comes from two important supply chain related implications. First, in terms of overall revenue breakdown, the bulk of LG’s overall revenues, 47 percent, had come from display shipments to television producers. Television OEM’s has experienced declines in revenues and profits for quite some time. LG’s strategic shift to designing and producing displays for tablets has raised revenues from that segment to ramp from 10 to 15 percent in the most recent quarter.  In its earnings briefing, senior management forecasted greater than 30 percent growth in supplying the tablet and mobile segment moving forward.  Overall production capacity increased 8 percent during the recent quarter.

A shift to newer, more advanced LCD technology requires massive capital investment, and that has posed significant financial burdens to LCD suppliers including LG Display.  High volume output is essential to offset such investments.

The second implication relates specifically to supplying LCD screens to Apple’s product supply chains.  Supply Chain Matters has previously provided commentary  related to the supply chain implications of Apple’s ongoing legal dispute with Samsung, who had previously been the primary supplier of LCD screens for Apple products.  For the past few quarters, Apple has modified its supply agreements to include multiple LCD suppliers including AU Optronics, Japan Display, LG Display and Sharp. LG’s current ramp-up in the tablet and smartphone segment can probably be attributed to the effect of Apple, including its latest new product introduction of the iPad mini. 

Apple also shifted requirements for display technology to shift to in-cell technology, combining the touch and panel layers in design.  Reports from various Asia based business media outlets have been reporting initial difficulties in securing high production yields with this new technology.  In its earnings call, LG executives indicated that production yields are beginning to stabilize.  That is important because Sharp has been struggling from both a financial and high yield production basis.

Moving forward, LG Display executives stressed a strategy of prudent inventory control capital equipment discipline in the coming months.  That is a testimonial that even as a high volume supplier to Apple, the new normal of business implies constant vigilance and agility.

Bob Ferrari