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Poor demand prompts AU Optronics to delay plans to set up a new facility

AU Optronics Corp (友達光電), the world's third-largest flat-screen panel maker, yesterday said it is considering deferring the construction of a plant for its next-generation products due to sluggish demand.

The decision came after the company reported disappointing August sales last week.

The Hsinchu-based liquid-crystal-display panel maker said monthly sales fell 23 percent to NT$ $11.22 billion, versus NT$14.56 billion made in July on a faster-than-expected price drop for flat screens.

"We certainly will adjust our schedule in accordance with market demand. And now the situation is different," AU Optronics chairman Lee Kuan-yao (李焜耀) said yesterday. Lee also holds the chairmanship for BenQ Corp.

AU Optronics was originally scheduled to set up an advanced 7-generation, or 7.5-generation, factory in Taichung in central Taiwan in 2006.

Last Wednesday, smaller local competitor Chi Mei Optoelectronics Corp (奇美電子) also blamed weaker-than-expected demand as the primary reason behind its decision to temporarily halt the construction of a 7.5-generation plant in Tainan.

A 7G, or 7.5G, plant is mostly designed to cut LCD substrates for 40-inch or larger flat-screen televisions.

"The deferral of construction of next-generation factories will have only a minor impact on the LCD industry, as new capacities from those plants will be available as early as 2006," said Eric Lin (林宜正), an analyst with Yuanta Core Pacific Securities (元大京華證券).

"What concerns investors now is how soon the price drop of LCD panels will assuage to make it in time for flat screen makers to stay profitable," Lin said.

Prices of a 17-inch LCD screens, which dropped at the fastest rate compared to other sizes, declined by about 30 percent to its current price of US$190 per unit, which is close to most local companies' cost of production rate of US$185, Lin said.

AU Optronics officials declined to comment yesterday on the price trend.

"We feel the slow season is over and the market is on the course to the normal," Lee said.

However, Aldirich Lai (賴文漢), an analyst with market researcher Topology Research Institute (拓墣產業研究所) in Taipei, said "there is still room for further price declines in the second half of the fourth quarter, when the LCD industry drifts into a seasonal low period."

Prices for LCD screens will drop another 10 percent in the fourth quarter from third quarter levels, Lai predicted. AU Optronics shares rose 2.31 percent to NT$44.3 on the Taiwan Stock Exchange yesterday.
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