I may be a hardcore fantasy-fiction buff, but I know better than to believe in the idea that a knight in shining armor will ride in to save the day. Investors in flat-panel companies should have kept that same skepticism in mind concerning the market for LCD TVs going into the World Cup season. As I said a few months back, I didn't think the market would firm up as much as the optimists hoped. Judging by the earnings from LG.Philips (NYSE:LPL) today, it seems I was right.

At a superficial glance, the flat-panel market doesn't seem so bad. After all, aren't the TVs flying off the shelves at Best Buy (NYSE:BBY) and CircuitCity (NYSE:CC)? Isn't every company adding more capacity to keep up with demand?

Yes, but those are different parts of the same essential problem. Units continue to fly off store shelves because prices keep falling. Prices keep falling because companies continue to add capacity and undercut each other in a bid to grab share. Rinse, repeat, and go broke.

LG.Philips is a long way from "broke," but this quarter still wasn't very good. Sales were virtually flat with last year, as a sharp drop in pricing offset continued growth in shipments. True ugliness appeared in the margins, though, as the company reported a gross loss (a negative gross margin) as well as an operating and net loss. It brings to mind the old joke: "We lose money on each sale, but we'll make it up on volume."

Of course, it's not just LG.Philips' problem -- this will hurt Samsung, AU Optronics (NYSE:AUO), and other players in the space as well. In fact, 3M's (NYSE:MMM) recent horror show was induced by problems in its optical films business (which feeds into the flat-panel industry).

Honestly, I don't see a tremendously compelling reason to invest in this sector. I'm still not convinced that any company will produce enduring economic value here, nor do I necessarily believe that the pure-plays can withstand larger companies like Samsung, Sony (NYSE:SNE), or Sharp -- any one of which can subsidize losses in flat panels from its other operations.

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Fool contributor Stephen Simpson owns shares of 3M, but has no financial interest in any other stocks mentioned (that means he's neither long nor short the shares).