Lg Display’s Profit Plunges 60 %

            The global economic downturn has shown it’s affects on numerous industries worldwide. One industry that has been hit due to the state of the economy has been manufactures of LCD panels. LG Display Co. has reported a profit loss of 60%. Consumers aren’t willing to pay between $3,500 and $5,000 for a flat screen LCD television with the economy in the shape that it’s in, Priorities change and people start using rational behavior on purchases they make.

            In the second quarter of 2009 LG’s sales for LCD displays; increased from the first quarter of 09. LG said “Signaling better times ahead for makers of LCD displays.” The increase of sales came right around the time consumers receive their tax returns back, and some people did go out and buy LCD flat panel televisions, but Increased sales for one quarter is no indication that the economy is strong nor will they increase sales for months to come. The shift in the demand for LCD TV’s came right when there was a temporary increase in income.

            Makers of LCD’s in Asia are experiencing a glass shortage for their LCD displays. To make up for the shortages they are renegotiating the price of LCD’s with TV set manufactures. With the price increase for LCD TV’s glass and the back to school and holiday season approaching, Consumer electronics tend to increase in price as well. This will result in the exploitation of the consumer. These price increases may have an opposite effect on the LCD makers. Consumers may wait for the price to come down before they purchase a LCD TV, or they may just substitute a LCD for a cheaper plasma TV.

            On the other hand LCD TV’s are what everyone wants and consumers are willing to pay the price for LCD’s. Raising the price on LCD’s will benefit LG for loss revenue they suffered when the economy started to turn faulty. The sales of LCD TV’s increase in the second quarter of 2009 could possibly be because consumers may be starting to see and feel that the economy is starting to recover, and starting to feel secure about their well being. They’re loosening their grip on their wallets and starting to buy luxury items again.

 The sales of LCD TV’s are expected to continue to increase with China’s stimulus package. The shortage of LCD’s is expected to last until the beginning of the fourth quarter of this year. Even with the Shortage of glass used in LCD’s companies are producing TV’s at full bore so they can be prepared for the strong second half of the year. The reason why there producing as fast as they can is because with the glass shortage they make more money per unit sold. Eventually more people will realize that there is money to be made from making glass for TV’s.The glass industry will becomes a competitive environment. And the shortage for glass will subside. In return the price for LCD’s will drop along with the profit LG was making on their short run profit maximization.

LG is going to expand their existing LCD production line and possibly build a manufacturing plant in China.  Making these changes now will increase efficiency and help LG to compete more effectively with their competition. The decision to do this is a great example of how LG adapts to the market structure.