Flat screen maker LG.Philips LCD Co. Ltd. swung to a quarterly profit after demand began to pick up, ending a run of four straight losing quarters, and forecast further price gains for the third quarter.

Hit by tumbling prices and oversupply last year, the liquid crystal display (LCD) industry has managed to recover quickly in recent months as makers sharply curtailed new investment to focus on margins.

LG.Philips, the world's second-biggest maker of large-sized LCDs, is set to reap even bigger profits in the third quarter on growing demand for flat-panel televisions and wider screens for personal computers and laptops. The results could be a clear sign of a recovery in earnings in the sector, said Kim Hyun-tae, fund manager at Landmark Investment Management. Panel prices are rising, so profits are likely to continue to improve in the second half. LG.Philips on Tuesday reported a 228 billion won

($247.8 million) net profit for the quarter ended June, well above a 138.2 billion won forecast by eight analysts polled by Reuters, helped in part by a tax-related gain.

The results marked a strong turnaround from a 322 billion won net loss a year earlier and a 169 billion won shortfall in the first quarter.

LG.Philips, the first major LCD maker to report the second-quarter earnings, said its average selling price fell by just 1 percent in the quarter compared with a 9 percent fall in the first.

It forecast an average price increase in the low single digit percent in the third quarter, with shipments rising by a mid-teens percent.

Its margin on earnings before interest, tax, depreciation and amortisation (EBITDA) is forecast at a high-twenties percent in the third quarter, compared with 25 percent in the April-June quarter.

Sales on consolidated basis came at 3.36 trillion won, up from 2.32 trillion a year earlier.

LG.Philips competes with bigger home rival Samsung Electronics Co. Ltd. and Taiwan's AU Optronics Corp. and Chi Mei Optoelectronics Corp.

THIRD-QUARTER PEAK

More consumers are replacing their bulky cathode-ray tube sets in favour of sleek and increasingly affordable flat screens.

Sales of wide-format PC and laptop screens are also rising fast thanks to the introduction of Microsoft's (MSFT.O: Quote, Profile, Research) new Vista operating system which focuses on multimedia functions.

Shipments of large-sized LCD panels are expected to grow to more than 350 million units this year, up 24 percent from 2006, iSuppli forecast in May.

LCD prices are likely to peak in the third quarter, then weaken later in the year on slower seasonal demand, but the overall supply should remain tight well into 2008 thanks to reduced new investment, analysts said.

Company profits are looking good for the time being as panel prices will probably continue to rise until the third quarter this year, but they will lose speed at the end of the year on slow demand, said Kim Dong-won, an analyst at Hyundai Securities.

LG.Philips last month scrapped an long-delayed investment plan for a panel production line but now aims for an even larger investment in a next-generation facility when conditions allow. Rival Samsung is set to kickstart its eighth-generation line of large panels in the third quarter.

(Additional reporting by Rafael Nam and Lee Jin-joo)

Electronics Samsung LG