Analysts view flat-screen market crash as unlikely

Shares of flat-panel display makers dropped yesterday on reports that panel prices will decline in the first quarter, but analysts said the likelihood of a market crash next year is slim.

Chinese-language newspapers reported that flat-panel display prices will decline in the first quarter due to rising supply and weaker-than-expected demand, citing Hon Hai Precision Industry Co (鴻海精密) chairman Terry Gou (郭台銘).

In the reports, Gou said Taiwan's liquid crystal display (LCD) industry is expected to experience a crucial point during the first quarter as a result of fast expansion of capacity. He based his forecast on the theory that ongoing high price tag could dampen buying sentiment for flat-screen televisions.

On the TAIEX, the nation's three largest flat-panel makers AU Optronics Corp (友達光電), Chi Mei Optoelectronics Corp (奇美電子) and Chunghwa Picture Tubes Ltd (中華映管) dropped nearly 5 percent, respectively, while smaller rivals Quanta Display Inc (廣輝電子) and Hannstar Display Corp (瀚宇彩晶) were set back about 7-percent to end at NT$15.90 and NT$13.60 each.

"I still hold a positive outlook for the flat-panel industry as the demand remain very strong," said Sean Wu (吳翔), an analyst with ABN-AMRO Securities. "Instead, the price is expected to rise at about US$5 per unit of small and middle-sized panels in the first three months of next year."

Analysts said the demand for flat panels will primarily come from the need for monitors and notebook computers, while those for flat-screen televisions will remain lukewarm.

That booming demand will drive local LCD makers' earnings next year, Wu said. The earnings growth will be at 50-percent pace on annual base to total about NT$22.7 billion, he added.

Wu said that slow demand in flat-panel TVs will only wield very limited impact on profitability as the gross margin for such TVs is as high as 60 percent.

"Taiwanese flat-panel makers still have ample room to drop their prices, while keeping their earnings healthy," he said.

Martha Chen (陳紅), an industry analyst of Primasia Securities Co, also said she maintains her outlook for the industry.

"Though overcapacity remains a concern for industry watchers, I still think the demand will mostly match supply for the full year of 2004," Chen said.

It is premature to say how strong the demand for LCD-TV will be, but one thing that is certain is that the increasing application of flat panels will offset the potential impact of weaker-than-expected demand for televisions, she said.

Taiwan's major flat-panel players did not expect their earnings to erode oversupply next year.

AU chairman Lee Kun-yao (李焜耀) said in late October that he was cautiously optimistic about the demand-supply situation next year, despite the emergence of a temporary and single-digit oversupply in the slack third quarter next year.

Chi Mei president Ho Chao-yang (何昭陽) shared the optimism about the balance of demand and supply, saying that it will be a profitable year for Chi Mei next year.