Prospectus Summary
PROSPECTUS SUMMARY The following is a summary of some of the information contained in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in our common stock or ADSs discussed under “Risk Factors” and our consolidated financial statements and notes to those financial statements included in this prospectus.Overview
We are the world’s largest merchant supplier, meaning supplier to third parties, of large-size thin film transistor liquid crystal display (TFT-LCD) panels. We manufacture TFT-LCD panels in a broad range of sizes and specifications primarily for use in notebook computers, desktop monitors and televisions, and we are one of the world’s leading suppliers of high-definition television panels. We also manufacture TFT-LCDs for handheld consumer electronics products, such as mobile phones and personal digital assistants, as well as for industrial and other applications, such as entertainment systems, automobile navigation systems, aircraft instrumentation and medical diagnostic equipment.
In 2003, we sold a total of 20.9 million large-size TFT-LCD panels, defined as panels that are 10.0 inches or larger. According to DisplaySearch, one of the leading independent industry research firms, we had a global market share for large-size display panels of approximately 22% based on sales revenue in 2003.
We were formed in September 1999 as a 50-50 joint venture between LG Electronics Inc. and Koninklijke Philips Electronics N.V., or Philips Electronics. We currently operate five fabrication facilities, or fabs, called P1, P2, P3, P4 and P5, located in Gumi, Korea, and two assembly facilities located in Gumi, Korea and Nanjing, China. We are currently constructing our first sixth-generation fabrication facility, P6, also in Gumi, Korea. In addition, in March 2004, we broke ground on a new TFT-LCD industrial complex to be developed in Paju, Korea, where we plan to build our seventh fabrication facility, or P7. To date, we have begun preliminary construction work on P7.
We seek to build our market position based on collaborative customer relationships, a focus on high-end display products and manufacturing productivity. Our end-brand customers include many of the world’s leading manufacturers of notebook computers, desktop monitors and televisions. In 2003, for example, our display panels were included in products sold by Dell Computer Corporation, Hewlett-Packard Company, International Business Machines, Apple Computer Inc., Toshiba, NEC-Mitsubishi Electric Visual Systems Corporation (NMV), LG Electronics and Philips Electronics, among others. Our dedication to customers has helped us win the DisplaySearch Customer Satisfaction Award in 2002, 2003 and 2004.
Our net sales were (Won)2,338.2 billion in 2001, (Won)3,566.7 billion in 2002 and (Won)6,098.4 billion (US$5,318.2 million) in 2003. For the three-month period ended March 31, 2004, our net sales were (Won)2,188.0 billion (US$1,908.1 million) compared to (Won)985.0 billion in the corresponding period in 2003. Net sales include panels manufactured for end-brand customers that are typically shipped and invoiced to their designated system integrators. We recorded net loss of (Won)295.3 billion in 2001 and net income of (Won)348.1 billion in 2002 and (Won)1,006.5 billion (US$877.7 million) in 2003. For the three-month period ended March 31, 2004, we recorded net income of (Won)639.7 billion (US$557.8 million) compared to net loss of (Won)31.4 billion in the corresponding period in 2003.
Strategy
We believe that the most attractive market for TFT-LCD products today is desktop monitors and that it is rapidly transitioning to televisions. We believe that the TFT-LCD market will continue to expand as consumers are drawn to replace conventional cathode ray tube (CRT)-based display products with TFT-LCD products due to their superior performance features. We believe that the market for TFT-LCD products will also expand in scope as new applications for this technology continue to be designed and developed.
We aim to maintain and build upon our current position as one of the world’s leading suppliers of TFT-LCD products by strengthening our collaborative customer relationships, focusing on high-end display products, including high-definition television panels, and continuing to enhance our manufacturing productivity. We believe that our technology leadership enables us to make timely investments in advanced manufacturing facilities and process technology improvements, which in turn positions us to deliver a broad and advanced product portfolio in high volumes and in a cost competitive manner to our customers.
Build strong collaborative relationships with end-brand customers
We plan to continue to focus our resources on expanding our strong collaborative relationships with our key end-brand customers. Our principal end-brand customers include many of the world’s leading manufacturers of computer products, such as Dell, Hewlett-Packard, IBM, Apple and NMV, as well as leading consumer electronics producers, such as Toshiba, LG Electronics and Philips Electronics. These customers represent a large portion of the global demand for TFT-LCD products, and they value our product and design innovations as well as our ability to provide a reliable and high- quality supply of a wide range of TFT-LCD products in high volumes.
We seek to collaborate with our end-brand customers in the design and development stages of their new products. Examples include the 17.1-inch wide-format display panel we designed for Apple’s iMAC™, the 23-inch wide format television panel we designed for Hitachi and the 30.0-inch wide format television panel we designed for LG Electronics and Philips Electronics. The close interactions with our end-brand customers allow us to gain insights into their product development strategies and market trends, and enable us to anticipate customer needs and tailor our research, development and manufacturing activities to take advantage of emerging market opportunities. Our strong customer relationships also mean that we enjoy relatively stable demand from these high-volume customers.
Make timely investments in advanced and flexible manufacturing facilities
Our strategy is to accurately time our investments in next-generation manufacturing facilities that enable us to support a wide range of products. As a result of our investment strategy, our production facilities are among the most advanced in the industry, and our portfolio of five fabs can produce a wide variety of products at high volumes to provide critical scale and flexibility in production.
In the past, our timely investment strategy has allowed us to establish a leading position in emerging product categories with high growth potential, such as the desktop monitor and television categories. We have benefited from the higher margins available early in the life cycles of such products. The flexibility of our operations also allows us to shift our production to the most attractive product market at any given time. For example, as the demand for larger and better monitors continues to grow, we have shifted production in our P3 facility from 15.0-inch desktop monitor panels to 20.1-inch UXGA high-resolution desktop monitor panels, thereby realizing higher margins.
The advanced nature and scale of our facilities is a key driver of our cost competitiveness. We believe it also enables us to better meet the volume, product variety and turnaround time requirements of our customers.
Leverage technology leadership to deliver high-performance products and enhance manufacturing productivity
We plan to continue focusing on our product and manufacturing technology in order to maintain our position as an industry leader in delivering a broad and advanced product portfolio in high volumes and in a cost competitive manner.
In the area of product technology, we plan to continue leading the market in the commercial application of technologies with superior performance characteristics. For example, we were one of the first TFT-LCD manufacturers to apply Super In Plane Switching (S-IPS) technology, which increases viewing angles for large-size desktop monitor and television products, in commercial production. We were the first to develop copper bus lines, which achieve faster video frame rates and brighter displays in larger-size panels, and integrated column spacers, which improve panel ruggedness and enhance viewing uniformity.
We plan to continue focusing our development efforts on design and process innovations. Our advanced design and process technology capabilities have enabled us to deliver substantial improvements in manufacturing productivity, often with only marginal capital investments. For example, our one-drop-fill technology allowed us to significantly reduce the time required to deposit liquid crystal materials into our panels. Our technology capabilities have also enabled us to enhance process efficiencies, thereby increasing our effective capacity. For example, we have been able to increase the number of 15.0-inch panels we manufacture in P4 from 12 per glass substrate to 15, with no change to substrate size. Our ability to ramp-up P4 and P5 in a short time span with minimal technical difficulties is also an example of our process technology leadership.
Focus on large and wide desktop monitor and television products while maintaining a broad product portfolio
Our strategy is to leverage our product technology, timely investments and advanced manufacturing capabilities to lead emerging large-size product categories that offer higher growth potential and higher margins and help shape industry standards in product features such as size and resolution.
Our focus on desktop monitors established us as the largest merchant supplier in this category in 2002 and 2003 in terms of units sold, based on data from DisplaySearch. The desktop monitor market is currently transitioning from 15.0-inch to larger panel sizes such as 17.0-, 18.0- and 19.0-inch, and we believe we are well positioned to capitalize on this opportunity with our full product line-up. In addition, we plan to maintain our leadership position in the premium 20.1-inch and above desktop monitor category, where we were the first-to-market with products such as 20.1-inch UXGA, 22.0-inch WSXGA and 23.0-inch WUXGA.
Currently the television market is experiencing strong growth. We began shipping television products in 2001 with 15.0-inch panels and have since broadened our product portfolio with the addition of 20.1-inch conventional format as well as 17.1-inch, 23.0-inch, 26.0-inch, 30.0-inch and 42.0-inch wide format panels. We were the largest merchant supplier in the television category in terms of both units sold and sales revenues in 2002 and 2003, based on data from DisplaySearch, and we continue to lead the market in introducing larger and higher-performance panels for televisions. For example, we were the first to develop 42.0-inch wide format, 52.0-inch wide format and 55.0-inch wide format high-definition television panels.
We believe that our product range across the notebook, desktop monitor and television markets is one of the broadest in the industry and that it enables us to strengthen our relationships with our end-brand customers.
Continually reduce costs
We focus on continually lowering our cost structure through:
Corporate Information
Our principal executive offices are located at 17th Floor, West Tower, LG Twin Towers, 20 Yoido-dong, Youngdungpo-gu, Seoul 150-721, Republic of Korea, and our telephone number at that address is (82-2) 3777-0790.