Asia's top LCD makers are bracing for earnings to falter in the second half of the year as TV sales lose momentum on concerns that a debt crisis in Europe will crimp overall IT spending.

South Korea's Samsung Electronics Co and LG Display and Taiwan's AU Optronics, leading makers of liquid crystal display (LCD) flat screens, face shrinking order books as TV producers betting on strong sales during the soccer World Cup now struggle with a high build up of stocks with sales growing less than anticipated.

The second half is seasonally strong, but earnings are likely to go down and the second quarter may mark the peak for the industry, said Daishin Securities analyst Jeff Kang.

Uncertainty over the macro economic outlook will check demand growth, he said.

Weak TV sales are the biggest concern at the moment. With high inventories, TV producers will set sales targets more conservatively and that will consequently reduce demand for TV panels and push prices down further.

Major panel makers depend largely on TV sales for business, with TV screens much bigger than desktop and notebook screens. Flat screen TV sales have boomed this year thanks to a broad recovery in consumer spending.

TV sales accounted for more than half of LG Display's overall sales in the first quarter.

Some LCD panel producers have already started lowering production on steeper-than-expected price falls and a weakening demand outlook, analysts said.

PRICE FALL

Strong demand from China and tight supplies of components boosted LCD panel prices earlier this year. But prices turned down in June on worries of slowing demand from Europe and China.

Current inventory levels are at their peaks and we predict panel prices will continue to drop until August, and then temporarily stabilize in September, said Jay Yoo, an analyst at Korea Investment & Securities in Seoul.

LCD producers are now hoping reduced production, a shift to high-end panels such as LCDs using light emitting diode (LED) technology, and a recovery in demand toward the year-end holiday season will help reverse the price fall.

Inventories in Europe and China are my concerns. We will see if demand can pick up from late August or early September as companies need to build up some stocks to prepare for the Christmas buying season, said John Chiu, fund manager at Fuh Hwa Securities Investment Trust in Taipei.

But sentiment toward LCD shares won't be good in the short term.

Samsung, which forecast this month that second-quarter earnings would come in at a record of 5.0 trillion won ($4.1 billion), may report quarterly operating profit from LCD sales almost tripled to 720 billion won.

This would be 6 percent down from the previous quarter.

LG Display, the world's No.2 LCD maker and a supplier to Apple's iPad tablet PC, is set to report more than trebled operating profit of 745 billion won in April-June, according to Thomson Reuters I/B/E/S.

AU Optronics Corp, Taiwan's No.2 LCD maker, is expected to swing to a profit from a year-ago loss.

LG Display shares fell 13 percent and Samsung dropped 5.4 percent over the past three months, versus a flat broader market.

AU shares fell 16 percent compared with a 2.6 percent drop in Taiwan's benchmark index.

Company Estimated Q2 Year ago Qtr ago Date

LG Display 745 bln won 218 bln won 789 bln won July 22

AU Optronics T$6.9 bln (T$6.6 bln) T$7.3 bln July 28

Samsung 720 bln won 250 bln won 490 bln won July 30

Chimei Innolux T$4.26 bln n/a T$3.38 bln Aug 9

NOTE:Estimates are based on data from Thomson Reuters I/B/E/S. Figures for LG Display are consolidated operating profit and forecasts for AU and Chimei are based on net profit. Earnings for Samsung are for LCD division operating profit, not the entire company.

(Additional reporting by Baker Li in TAIPEI; Editing by Dhara Ranasinghe)

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