SEOUL (Reuters) - LG Display Co Ltd (034220.KS) on Tuesday said it is looking to diversify its supplier base in case a diplomatic spat sees Japan extend export curbs on display-making materials bound for South Korea.
Japan this month placed restrictions on the export to South Korea of three high-tech materials used particularly in making chips and displays, in a move widely attributed to a dispute about their shared wartime past.
The restrictions - which essentially add paperwork and delays to the materials’ export - have the potential to disrupt the global tech industry as Korea is home to some of the world’s largest chipmakers and best-known consumer electronics brands.
South Korean firms have responded by stockpiling and seeking alternative suppliers, though market watchers have questioned the ability to match the quality of the affected materials, for which Japan dominates the global market.
“There are, so far, no concerns significantly affecting the company, but we are making preparations, ensuring uninterrupted sourcing for the short term, and diversifying sourcing channels over the medium term,” said LG Display Chief Financial Officer Suh Dong-hee during an earnings briefing.
“Though it’s possible that Japan’s exports curbs will be extended in the future, it’s very difficult to predict what would come next,” Suh said, after the Apple Inc (AAPL.O) supplier reported a second-quarter operating loss that was deeper than market estimates.
One of the restricted materials is hydrogen fluoride, used as an etching gas when making chips and displays. South Korea imported about 44% of its hydrogen fluoride from Japan in the first five months of this year, Korean industry data showed.
The impact of the restrictions on LG Display is likely to be less acute than on chipmakers as the firm has alternative sources of hydrogen fluoride of the quality it needs, said analyst Park Sung-soon at Cape Investment & Securities.
LG Display has been struggling with a global supply glut in liquid-crystal displays (LCDs) used in television sets, which has pushed down prices. Like many other global tech firms, it is also dealing with uncertainties caused by a Sino-U.S. trade dispute involving import tariffs on tech goods and services.
Prices for LG Display’s main product, 50-inch TV LCDs, slid as much as 7.5% in April-June versus the same period last year, showed data from WitsView, part of research provider TrendForce.
Analysts said TV makers have stockpiled panels for fear of further tariffs, raising inventories and exacerbating the glut.
“Set makers have been stocking up on panels in advance due to fears of a 25% tariff to be placed into effect in the third quarter, leading their panel inventories to pile up and resulting in conservative purchasing,” said analyst Iris Hu at TrendForce ahead of the earnings release.
For April-June, LG Display said its operating loss widened to 369 billion won ($313.02 million) from 228 billion won a year earlier. That compared with analysts’ forecast loss of 268 billion won, according to Refinitiv SmartEstimate.
Revenue fell 5% to 5.4 trillion won.
“There wasn’t really any good news for its second-quarter with demand still weak and sentiment still remaining negative because of the U.S.-China trade dispute,” said Cape Investment & Securities’ Park.
Declines in panel prices and shipments both were wider than expected, Park said.
Also on Tuesday, LG Display said it would invest $2.6 billion in its organic light-emitting diode (OLED) panels production line in South Korea.
Reporting by Heekyong Yang and Ju-min Park; Editing by Sayantani Ghosh and Christopher Cushing