'LGD' and 'Samsung Electro-Mechanics' Face Demand Cliff in Q3... 'LG Innotek' Smiles Alone

LG Innotek, Quarterly Sales 5 Trillion
LG Display, Consecutive Losses for 2 Quarters
Samsung Electro-Mechanics, Operating Profit Down 32%
"More Divergence Expected in Q4"

LG Display Paju Plant view. [Photo by LG Display]

[Asia Economy reporters Han Yeju and Kim Pyeonghwa] Due to the demand slowdown caused by the global economic recession, domestic parts manufacturers received their worst performance results in the third quarter of this year. LG Display recorded losses for two consecutive quarters, and Samsung Electro-Mechanics saw its operating profit decline by more than 30%. The only company to achieve an 'earnings surprise' was LG Innotek, which is credited with benefiting significantly from its largest client, Apple, and the iPhone 14.

According to each company on the 27th, LG Display could not avoid a deterioration in performance due to sluggish demand in the upstream market. LG Display recorded negative growth in the third quarter following the second quarter this year, posting an operating loss of 759.3 billion KRW. Sales also decreased by 6% compared to the same period last year, amounting to 6.7714 trillion KRW.

LG Display stated that in the third quarter, the macroeconomic environment rapidly worsened, leading to a decrease in actual demand upstream and inventory adjustments by distributors and set manufacturers, causing panel demand to decline more sharply than expected. In particular, in the mid-sized and premium TV panel markets, unprecedented demand drops and price declines in the second half of the year affected performance. Regarding organic light-emitting diode (OLED) panels, with Europe accounting for more than 45% of demand, the OLED business was directly hit by local consumption contraction due to the Russia-Ukraine war and other factors.

Samsung Electro-Mechanics was hit by a sharp decline in smartphone demand in its main market, China. In the third quarter, it recorded sales of 2.3837 trillion KRW and operating profit of 311 billion KRW, representing a 6% decrease in sales and a 32% drop in operating profit compared to the same period last year. Net profit also fell by 24.1% year-on-year to 268.2 billion KRW.

Although sales of related parts such as high-resolution camera modules and automotive multilayer ceramic capacitors (MLCC) increased due to growth in the automotive product market, the decline in demand for IT finished products such as smartphones and PCs, along with inventory adjustments, led to a decrease in performance compared to the previous quarter.

On the other hand, LG Innotek posted its best-ever third-quarter results with sales of 5.3874 trillion KRW and operating profit of 444.8 billion KRW, thanks to the launch effect of Apple's iPhone 14 series. This is the second time quarterly sales have exceeded 5 trillion KRW since the fourth quarter of last year. Compared to the same period last year, sales increased by 41.9% and operating profit by 32.5%. This is the first time the quarterly sales gap between Samsung Electro-Mechanics and LG Innotek has widened to more than twice.

LG Innotek explained, "We began full-scale mass production of new customer models, expanding the supply of high-performance camera modules for smartphones, which drove our performance," adding, "Sales increased across all automotive parts product lines, including 5G communication semiconductor substrates, vehicle communication modules, and power components for electric vehicles, supporting the growth in results."

In the fourth quarter, the fortunes of the three companies are expected to diverge further. LG Innotek typically posts its highest performance in the fourth quarter annually. With camera modules being supplied not only for smartphones but also for autonomous vehicles, expectations for LG Innotek's fourth-quarter performance are expected to grow even more.

However, Samsung Electro-Mechanics, whose key customer product launches are concentrated in the first quarter, is expected to be affected by the seasonal year-end slowdown. In fact, during the conference call following the third-quarter earnings announcement, Samsung Electro-Mechanics stated, "In the fourth quarter, due to external environmental uncertainties, continued slowdown in IT set demand, and seasonal year-end effects, we expect overall company sales to decrease compared to the third quarter."

LG Display anticipates that the market will generally experience demand stagnation through the fourth quarter of this year and into next year. Accordingly, it has taken steps to adjust investments aggressively. It plans to reduce capital expenditures (CAPEX) by more than 1 trillion KRW this year and execute next year's CAPEX at about half the level of depreciation expenses. Panel production will also be reduced. LG Display will lower the operating rate of its large OLED fab to adjust production capacity (capability). The plan is to operate capacity according to actual demand trends in the future to enhance cost competitiveness.

This content was produced with the assistance of AI translation services.