Small is beautiful to panel makers

Taiwanese flat-panel display makers are diversifying into higher-margin screens for consumer electronics gadgets, such as handsets, to reduce the impact of the fickle industrial cycle, industry insiders said yesterday.

AU Optronics Corp (友達), the world's No. 3 flat-panel supplier and the nation's biggest small-and-medium-size panel maker, said it is moving part of its less advanced plants to produce l0-inch or smaller screens.

"We're moving part of our 3.5-generation, or 4-generation capacities to produce smaller panels, or high-margin products," Max Cheng (鄭煒順), chief financial officer of AU Optronics Corp (友達光電) told investors in April.

Ken Yu (余文耀), an analyst with SinoPac Securities Corp (建華證券), expects the strategy will help boost AU's profitability and sales in the third quarter.

The contribution from the consumer electronics segment will play a bigger role in the slack third quarter, when liquid crystal display (LCD) panel suppliers await the back-to-school purchase spree, Yu said.

"As replacement demand for stylish LCD televisions and computers stagnates, small and medium-sized panel business in turn looks lucrative," Yu added.

Gross margin for mobile phone panels can be as high as 40 percent, compared to an average 20 percent, Yu added.

AU aims to ship 36 million units of smaller than 10-inch LCD panels this year, in which 1 million will be used in mobile phones.

Shares of AU Optronics slumped 4.7 percent to NT$47.10 on the TAIEX yesterday. Chi Mei Optoelectronics Corp (奇美電子), the nation's second-largest maker of flat-panel displays, fell 3.9 percent to NT$49.50.

To digest additional capacities and boost profits, smaller competitors Chi Mei, Chunghwa Picture Tubes Ltd (華映) and HannStar Display Corp (瀚宇彩晶) are planning to follow suit.

"The diversion is certainly unable to write off the additional capacities as a result of sluggish demand for LCD TVs and LCD monitors," said Sean Wu (吳翔), an analyst with ABN AMRO Asia Limited Taiwan.

The weak share prices of LCD makers already reflect the worry about a supply glut in 2005, when more LCD suppliers start to operate advanced sixth-generation fabs including AU, Wu said.

Aside from the hot area of TV panels, Prime View International Co (元太科技), the nation's second-largest small flat-panel screen maker after AU, said car TVs and DVD players are very promising.

"We're operating at full capacity now," Prime View spokesman Douglas Tao (陶大基) said.

"Gross margins for tailored displays used in autos and DVD players are very stable and less vulnerable to industrial cycles," he added.

In April, Prime View raised by about 30 percent this year's financial forecast to NT$1.56 billion in net profits, up from previous estimate of NT$1.2 billion.

LCD panels for automobiles will grow at a moderate 10 percent pace to 10.98 million units this year from 9.9 million units in 2002, the research agency said.