Chunghwa Picture warns of losses in December quarter

Chunghwa Picture Tubes Ltd (中華映管), Taiwan's No. 3 maker of flat panels, said it may see losses in the current quarter, blaming irrational price cuts stemming from overcapacity.

The remarks are in line with market expectations following an announcement by bigger rival AU Optronics Corp (友達光電) last week that it could sustain a loss of NT$1 billion in the three-month period to December.

"It should be primarily a result of the stiff price war wielded by liquid-crystal-display (LCD) panel makers. We really don't want to see this," chairman Frank Lin (林鎮弘) said.

Bigger market share from reduced prices comes at the expense of profits, he said.

"Our loss in the flat panel area could be at a similar level as our rival's," Lin said.

But Chunghwa Picture will still outstrip its competitors, thanks to steady earnings from its cathode-ray-tube business, he said.

`Irrational'

Lin also called on Chunghwa Picture's local peers to stop irrational price cuts so the companies can survive the industrial downcycle together.

It should be an alternative way for local companies to keep afloat as consolidation is not seen as an option, Lin said.

Analysts also do not expect to see consolidation.

"No substantial reasons support them to seek consolidation, though it is a better way to level off over-production of LCD panels," said Ken Yu (余文耀), an analyst with SinoPac Securities Corp (建華證券).

Furthermore, industry watchers doubt that local LCD makers will jointly build a next-generation plant to curb capacity, following their Japanese and South Korean rivals, he said.

"The worst scenario will be that weaker competitors will be forced out of the market after prices fall to cost levels," Yu said.

That level is not far away, said Liu Chih-chun (劉治軍), a vice president of Chunghwa Picture.

Liu expects prices for 17-inch TFT-LCD panel for computers to drop 8 percent by year-end from the current US$170, approaching most flat panel makers' cash cost.

With stronger cost-saving capabilities, Chunghwa Picture said it could reduce the cash cost for 17-inch panels to US$150.

Prices for LCD panels tumbled over 30 percent in the third quarter from the previous three months, Liu said.

The drastic price collapse has eaten into Chunghwa Picture's third-quarter earnings.

The company said quarterly earnings dropped 65 percent to NT$2.5 billion from NT$7.1 billion in the second quarter, dragged down by its TFT-LCD business.

Earnings in its TFT-LCD business declined to NT$1.23 billion, down 80 percent quarter-on-quarter from NT$5.92 billion.

In the first three quarter, Chunghwa Picture made NT$15.15 billion in profits, or NT$2.31 a share, which already accounted for 85 percent of the NT$17.67 billion it estimated for 2004 earnings.

Chunghwa Picture shares bounced back by 7 percent yesterday to close at NT$12.25 each on the benchmark Taiwan Stock Exchange.