Fri, Aug 06, 2004 - Page 10 News List

NT$9.01b in Q2 profits for Chi Mei

FLAT-SCREEN MAKER While the profits were at an all-time high, they represented just an 8.3 percent growth over the first quarter -- and that has analysts concerned


Chi Mei Optoelectronics Corp (奇美電子), ranked No.2 among the nation's flat-screen makers, yesterday posted a solid quarterly result, but analysts said the strong growth may not be sustainable amid a boom-and-bust cycle.

Second-quarter profits surged to a record high, up more than 1,100-fold to NT$9.01 billion from NT$729 million a year ago fueled by strong demand. That, however, represented merely an 8.3 percent growth versus the first quarter.

The Tainan-based company had NT$16.34 billion in earnings in the first half of the year, a sharp jump from NT$101 million a year ago. Earnings per share climbed to NT$5.21 from NT$0.04.

Chi Mei shares rose limit-up at NT$40.9 on the TAIEX yesterday.

But flat-panel makers are facing challenging third and fourth quarters as recent sluggish demand and a surfeit of panel supply are threatening to throw the industry into a reverse, analysts said.

During the April to June period, Chi Mei saw its gross margin drop from 33.7 percent in the previous quarter to around 33 percent, but the figure may decline even further to around 20 percent as a result of the drastic price reduction, said Ken Yu (余文耀), an analyst with SinoPac Securities Corp (建華證券).

"Chi Mei may only earn half of the money it made in the second quarter," Yu said.

Furthermore, the steep profit decline will be across the liquid-crystal display (LCD) panel industry, with bigger rival AU Optronics Corp (友達光電) likely to suffer a similar 40 percent to 50 percent drop quarter-on-quarter from the second-quarter's NT$14.39 billion, he said.

Chi Mei said yesterday that it plans to lower prices by 15 percent to 20 percent for computer LCD panels during the third quarter.

Mainstream 17-inch computer flat panels are now trading at US$250 apiece.

"We're fumbling for a direction in the dark now," vice president Hsu Chun-hwa (許春華) told an investor's conference. "We hope the price reduction will spur demand and help speed up inventory write-off in the second half."

LCD screens used in computers made up a hefty 50 percent of Chi Mei's total sales of NT$30.31 billion in the quarter that ended in June.

Chi Mei's inventory of finished goods used for computer screens swelled to three months, higher than the healthy two months, but was still within the company's limits, Hsu said. Chi Mei also plans to slow down its capacity expansion to help the industry return to a healthier situation.

Hsu said Chi Mei's panel shipments will remain at the same level as the second quarter, when it shipped about 3.6 million units.

Chi Mei is the third local company after AU and smaller Chung-hwa Picture Tubes Ltd (中華映管) to decide to curb fast production growth amid a downturn in the


But the move will not be aggressive enough to avert an oversupply, or a inventory bulge, given the huge capacity increase by South Korean rival Samsung Electronics Co and local rivals, said Eric Lin (林宜正), an analyst with Yuanta Core Pacific Securities (元大京華證券). The ballooning inventory is expected to be digested by the end of next month at the earliest, Lin said.

"We can only pin hope on a pickup in demand as the industry visibility is pretty low now," Lin said.

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