Hur Young-ho

LG Innotek is also planning to invest 1.1 trillion won in lucrative light-emitting diode (LED) chip-related facilities in 2010 more than double the 530 billion won it spent last year, the company said in a statement, Sunday.

The upbeat investment and sales targets came after the company posted 45.6 billion won in total operating profit in 2009, a decrease of 10.5 percent from 2008, which excludes the company's overseas performances.

Analysts say the deterioration of the company's printed circuit board (PCB) margins and rising inventories amid the year-end season weighed heavily on the company's profit structure.

"The situation won't be easy for us. But Innotek is urgently tasked to effectively nurture next cash-cows, while boosting the potential for sustainability in our key businesses," CEO Hur Young-ho said.

The company has a plan to increase LED-related sales to 1.5 trillion won by 2012. It is also targeting to gain a 10 percent global share in the LED-packaging sector by then.

"We will raise the production capacity of LED packaging by fourfold over the next two years. Meanwhile, Innotek will bet more on LED-related component sectors and on securing relevant key technology," Jung Jae-wook, a company spokesman, said.

Effective Competition

Helped by the promise of more sales and further investment, analysts expect that LG Electronics will "effectively compete" with Samsung Electronics, in the global LED-backlit LCD TV market this year.

LG Electronics owns a 50.6 percent stake in LG Innotek, while the remainder is held by strategic investors, including foreigners.

LG Group, one of South Korea's biggest conglomerates, has been pushing to "vertically integrate" its key business units to lower the production costs for LCD televisions with LED backlighting, a premium product in the television market. And the role of LG Innotek is considered a critical part of the puzzle.

That means LG Electronics' LED-backlit LCD TV strategy is highly reliant on the production capability of LG Innotek in LED chips.

But unsecured production yields in chips by Innotek caused LG Electronics to have to re-adjust its LED TV sales targets every other month, last year. This was behind LG's failure to penetrate further into the global LED-backlit LCD TV market.

Chief of LG Display, Kwon Young-soo, said that Innotek, which mainly makes LED components, had enhanced its supply chain management structure in LED chips, and this improvement will be a strong factor in helping it compete with Samsung in LED-backlit products.

LG Electronics, the runner-up to Samsung Electronics in the global flat-screen TV market, aims to sell 7 million LED-backlit LCD TVs by the end of the year. LED-backlit LCD TVs are expected to take up nearly 30 percent of LG Electronics' total LCD TV sales.

But market analysts are split over the outlook for Innotek's shares.

Although some say that the fourth quarter was the bottom for its shares, quite a few analysts have been questioning the company's financial stability.

"It is expected that Innotek will see a rapid increase in external growth. But its profit structures are still weak," Kim Un-ho, an analyst at Prudential Investment, said, adding possible new share and bond issuing plans could hurt the company's cash-flows.

"Innotek will sell 300 billion worth of new shares soon. Its shares will suffer from a correction but the move is better than a borrowing plan. Innotek has been under an expansionary track in LED-related sales in the current quarter," Kwon Sung-yul, an analyst at Hana Daetoo Securities, said.

LG Innotek, which merged with another LG Group component-producing arm, LG Micron, in July last year, has Nokia, Motorola and Sharp as its biggest overseas clients.