Wed, Jul 14, 2004 - Page 10 News List

Analysts counter negative outlook for panel makers

OVERSUPPLY Compal Electronics president Ray Chen predicted heavy losses in the flat-panel display sector, but analysts say the industry is flexible enough to cope


Taiwanese flat-panel display makers, led by AU Optronics Corp (友達光電), will have a better chance of overcoming an expected slump in the market next year than they did in a similar situation three years ago, industry watchers said yesterday.

The comments came in response to a prediction by Compal Electronics Inc (仁寶電腦) president Ray Chen (陳瑞聰) that the nation's liquid-crystal-display (LCD) sector will suffer a downturn next year.

Chen told a Chinese-language newspaper that he expects an oversupply in the flat-panel industry next year, and that some manufacturers are likely to drift into a financial swamp by posting losses of up to NT$10 billion.

"Chen overstates the severity. Panel supply will exceed the manageable level in 2005, but that will not plague local flat-panel suppliers," said Eric Lin (林宜正), an analyst with Yuanta Core Pacific Securities (元大京華證券).

Lin predicts that the supply of LCD panels will exceed the demand by a relatively moderate 15 percent in the second half of next year in light of limited new capacities from AU and smaller rivals.

Market researcher DisplaySearch said last month that the sector's overall capacity will grow 48 percent to around 143 million units this year from a year ago, and will rise to 199 million units next year. The projected 199 million units will be about 10 percent higher than the expected market demand of 179 million units for next year, the researcher said.

Compal, the world's No. 2 two laptop computer supplier, provides LCD monitors and notebook computers to US computer giants Dell Inc and Hewlett-Packard Co.

Lin expects a 15-percent price drop on 17-inch screens for LCD monitors to US$255 per unit by the end of the year due to additional capacity from AU Optronics, Chi Mei Optoelectronics Corp (奇美電子) and HannStar Display Corp (瀚宇彩晶).

"Next year will be a slower year for local flat-screen suppliers. But it will be merely a question of how much profit they will make," an analyst at CLSA Ltd said on condition of anonymity.

Things are very different now compared to the situation three years ago, the CLSA analyst said, as flat-screen suppliers are more capable of managing industrial cycles now that flat screens can be used in a wider range of electronics products, including mobile phones and televisions.

In 2001, AU lost NT$6.7 billion, or loss of NT$2.34 per share, when the sector was hit hard by overcapacities.

That slump has prompted the consolidation of Acer Display Technology Inc and Unipac Optoelectronics Corporation (聯友光電) in September 2001 to create the nation’s biggest LCD maker, AU.

Compal Spokesman Gary Lu (呂清雄) further defended President Chen’s dismal comments about a repeat of the history.

A supply glut is likely to surface again as early as the second half of 2005 after new advanced plants, which can produce much more screens, to join the current capacities, while demand may grow at a slower pace, Lu said.

“LCD makers are betting on demand from LCD TVs to thrive. If demand disappoints, the huge capacities will be diverted to make computer-related displays and cause a glut,” Lu said.

In addition, capital-intensive LCD sector could be vulnerable to a sudden swift in industrial cycles, plus the heavy burden from equipment depreciation cost, he said.

“We think there’s still the likelihood,” Lu concluded.

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