Looking ahead, we expect to see prices begin to stabilize, and anticipate sustained growth in consumer demand for LCD TVs, in the second half of 2006.
Ron Wirahadiraksa, President and CFO, LG.Philips LCD

LG.Philips LCD (LPL), one of the world's leading TFT-LCD manufacturers, today reported sales in the second quarter of 2006 decreased by 6% to $2.4 billion from sales of $2.6 billion in the first quarter of 2006. Sales were up slightly, 0.3% from Q2, 2005. The company cited industry-wide decline in average selling prices across the TV, monitor and notebook segments, as well as lower than expected sales volume growth as the primary cause for the sequential decline.

LG declared an loss in the second quarter of 2006 of $USD 339 million compared to a profit of $51 million in the first quarter of 2006 and a profit of $43 million in the second quarter of 2005.

"The second quarter was a difficult quarter for the Company, as we were significantly impacted by much greater than expected industry-wide pricing weakness. As we look closely at our business and the long-term growth prospects for the TFT-LCD industry, we remain committed to building sustainable value for shareholders and customers by balancing long-term growth strategies with shorter-term actions designed to maximize operating profits," said Bon Joon Koo, Vice Chairman and CEO of LG.Philips LCD.

Mr. Koo continued, "The decision to continue evaluating any further investment in a next generation and invest in a multi-purpose Gen 5.5 facility, which will be housed in our P8 facility, demonstrates our resolve to both adapt to changing market conditions and to make timely investments to meet our customers' forthcoming needs, particularly in the expanding wide format notebook and high-end monitor segments."

TFT-LCD panels for TVs, desktop monitors, notebook computers and other applications accounted for 48%, 26%, 21% and 5%, respectively, on a revenue basis, in the second quarter of 2006, compared to 45%, 30%, 20% and 5%, respectively, in the first quarter of 2006.

Overall, the Company shipped a total of 1.5 million square meters of net display area in the second quarter of 2006, a 17% increase quarter-on-quarter, with an average selling price per square meter of USD 1,598. This represents a decrease in the average selling price per square meter of net display area of approximately 19% compared to the end of the first quarter of 2006 and an average decrease of 18% from the first quarter of 2006.

"We are disappointed with our financial performance in the second quarter of 2006. As a result, the Company is now taking initiatives to address the issues that are affecting our business. As we announced in June, we are addressing an increase in inventory levels during a period of overcapacity, primarily in the LCD TV segment, by temporizing production. We will continue to control inventory levels going forward," said Ron Wirahadiraksa, President and CFO of LG.Philips LCD.

Mr. Wirahadiraksa continued, "We believe that the temporization of production, along with other efforts, will enable us to maintain our competitiveness as a top-tier player in an industry that is starting to take a more rational approach to capacity and has undiminished long-term growth prospects. While some of the measures are immediate, we generally expect they will strengthen our shareholders' long-term value and will enable us to leverage the industry's strong growth opportunities as we closely examine all areas of our manufacturing, capital expenditures, customer relations and expense management. We are confident that LG.Philips LCD's business results and prospects will improve over the course of 2006."

"Looking ahead, we expect to see prices begin to stabilize, and anticipate sustained growth in consumer demand for LCD TVs, in the second half of 2006, particularly in the fourth quarter. For the third quarter of 2006, we expect our area shipments to increase quarter-on-quarter by a mid-to-high twenties percentage, driven by continued growth in the expanding LCD TV segment, continued ramp up at our P7 facility, and the stabilization of pricing," said Mr. Wirahadiraksa. "We expect our average selling price per square meter of net display area shipped at the end of the third quarter of 2006 to be relatively flat, as compared to the end of the second quarter of 2006, largely due to increased seasonal demand leading into the holiday season. We expect the average ASP per square meter in the third quarter to decrease by a mid-single digit percentage. Our EBITDA margin for the third quarter is anticipated to be in the low teens range."

Mr. Wirahadiraksa continued, "We have made a decision to postpone investment in existing fabs and, as a result, have revised our capital expenditure guidance downward from KRW 4.2 trillion to KRW 3.0 trillion for 2006."