Chi Mei forecasts an 83% dip in profits expectation

Chi Mei Optoelectronics Corp (奇美電子), the nation's second-largest maker of flat-panel displays, said this year's profit will fall by about 83 percent as prices drop.

Some analysts said its forecast may be too optimistic.

Chi Mei expects net income this year of NT$836 million (US$24 million) compared with NT$4.7 billion last year, the company said in a statement to the Taiwan stock exchange.

Sales will rise to NT$61.6 billion from NT$40.7 billion last year, the company said.

Flat-panel prices are falling as Samsung Electronics Co, LG.Philips LCD Co and other display makers invest in new factories, increasing supply.

Prices may fall more than Chi Mei expects, analysts said, driving the company into deficit. The median estimate of four analysts surveyed by Thomson Financial is for Chi Mei to post a net loss of NT$1.92 billion this year.

"This is more a company-specific issue," said Frank Lee, an analyst with Deutsche Securities Asia Ltd.

"Chi Mei has increased capacity recently, so costs are going up," he said.

Prices of flat-panel liquid crystal display monitors used in televisions and personal computers fell by up to 30 percent in the fourth quarter from a year earlier while shipments rose by 54 percent, Austin, Texas-based DisplaySearch said last month.

Flat-panel makers will raise their investment in manufacturing equipment by 24 percent to US$6.4 billion this year in a race to cut production costs and make larger television-sized panels ahead of rivals, DisplaySearch said.

Increased production by Samsung and LG.Philips LCD in South Korea and AU Optronics Corp (友達光電), its larger rival, may result in oversupply starting in the second half this year, Chi Mei said.

"We're factoring in a lot of expectations for overcapacity," said Eddie Chen (陳彥松), a finance manager with Chi Mei, in an interview.

"The third quarter and the fourth quarter are when you'll see the impact," he said.

Samsung was the world's biggest flat-panel maker last year with a 15.1 percent market share, followed by LG Philips and Sharp, according to DisplaySearch. Chi Mei ranked sixth with 5.9 percent.

Chi Mei's first-quarter sales rose by more than 41 percent to NT$12.5 billion, based on monthly revenue reports. Chi Mei and Quanta Display Inc (廣輝電子), a venture between Quanta Computer Inc and Japan's Sharp Corp, were the only ones of five flat-panel rivals in the country to post an increase in first-quarter sales.

Chi Mei last month scrapped plans to sell NT$20 billion of new shares overseas, saying the US-Iraq war weakened demand from investors. It said it may sell 500 million shares domestically instead.