South Korean flat-screen maker LG.Philips LCD Co. Ltd. posted its strongest profit in 13 quarters on Tuesday, helped by tight supplies and growing demand that is expected to keep the sector healthy through 2008.

The liquid crystal display (LCD) industry should get another boost next year thanks to surging consumer appetite for sleek flat screens, helped by the 2008 Beijing Olympic Games.

We see favourable conditions for the LCD market until the first half of next year, said Chang In-whan, chief executive and fund manager at KTB Asset Management.

In the second half of next year, however, the forecast is not that bright, because the LCD industry is probably going to focus on expanding facilities.

As if on cue, LG.Philips announced it would invest 3 trillion won ($3.27 billion) next year -- three times 2007's capital expenditure -- including 2.5 trillion won on a new facility for building large-sized TV sets.

The plant is set to hit mass output in the first half of 2009, which could pose a potential problem for the industry as the LCD sector's stronger-than-expected recovery this year was due in great part to reduced new investments after a supply glut caused hefty losses in 2006.

LG.Philips, the world's second-biggest maker of large-sized LCDs, earned a 524 billion won net profit in the quarter ended September, against a 321 billion won net loss a year earlier and a 228 billion won profit in April-June.

The results were slightly above a 513 billion won profit forecast by nine analysts polled by Reuters and were the strongest since a 701 billion won profit in the second quarter of 2004.

Operating profit on a consolidated basis was 693 billion won, from a 382 billion won loss a year ago and much higher than the 502 billion won expected.

While analysts expect LG.Philips and rivals Samsung Electronics Co. Ltd. and Taiwan's AU Optronics Corp. to see a drop in prices in the fourth quarter, many believe the seasonal price fall will be limited in duration, with tight market conditions resuming in early to mid-2008.

SUBPRIME RISK IN U.S.

The outcome hugely surpassed market expectations and estimates, said Park Hyun, an analyst for Prudential Investment & Securities. This will continue into the fourth quarter and straight into the end of next year.

The company said it expected its margin on earnings before interest, tax, depreciation and amortisation (EBITDA) to remain in the mid-thirties percent in the fourth quarter, similar to the 35 percent margin posted in the July-September quarter.

Aside from a possible supply glut, analysts said the LCD industry could face the potential risk of reduced U.S. consumer spending, the result of the current sub-prime credit crunch.

The major risk to the global LCD industry is a slowdown in the U.S. economy, which holds the key to growth in the global IT industries, said KTB's Chang.

Shares in LG.Philips, which has a market value of more than $17 billion, stocks rose just 1.6 percent in the third quarter, underperforming an 11.6 percent market gain.

The company said it expected joint owner Philips Electronics to whittle down its stake to about 19.9 percent within this year. Dutch Philips has said in the past it planned to reduce its current 33 percent stake in the South Korean company to below 20 percent.

(Additional reporting by Cheon Jong-woo, Lee Jin-joo and Kessica Kim)

Electronics LG Samsung