Wed, Jan 05, 2005 - Page 10 News List

Gloomy outlook for LCD makers

OVERCAPACITY New factories are planned, which will worsen the oversupply situation, but flat-screen TVs may provide a bright spot


Taiwanese liquid-crystal-display (LCD) makers may face severe difficulties in the year ahead, after the booms-and-busts of last year, due to overcapacity and uncertainty over demand for computer monitors and flat-screen televisions, analysts said.

Overall, global flat panel makers thrived last year, with earnings skyrocketing to record highs thanks to strong demand for computers. Taiwanese companies alone are expected to reap big profits, with an estimated NT$62.33 billion in earnings.

But, things turned sour in the final quarter of 2004, as demand lagged far behind supply, further hurting panel prices. Analysts estimate the persistent overcapacity has cut LCD display prices by over 35 percent, approaching the cost of most display makers in the fourth quarter.

With the price erosion, several flat-panel manufacturers issued profit warnings last year. Overall, the nation's four primary thin-film-transistor (TFT) LCD suppliers, led by AU Optronics Corp (友達光電), forecast a total loss of NT$7.98 billion during the period.

But the nightmares may not end there, according to an analyst at SinoPac Securities Corp (建華證券).

"The huge increase in new capacity could weigh on the ongoing oversupply," Ken Yu (余文耀) said. "Worsening oversupply could lead to further price drops and magnify losses in the first two quarters, which are the slow seasons for electronics makers."

The expansion plans of Taiwanese flat-panel makers support Yu's warning.

AU Optronics, Chi Mei Optoelectronics Corp (奇美電子), Chunghwa Picture Tubes Ltd (中華映管), Quanta Display Inc (廣輝電子) and Innolux Display Corp (群創光電) are scheduled to crank out slim screens at new flat-panel factories in the first quarter.

Planned capacity increases are not limited to local companies. South Korean giant Samsung Electronics Co's advanced seventh-generation fab, or factory, will start operation in the first quarter, according to Yu.

Chinese TFT-LCD display latecomers SVA Co (上海廣電) and Beijing Orient Electronics Technology Group (京東方) are also gearing up to join the ranks of their global competitors early this year, with the help of their overseas partners, Yu said.

Capacity expansion is expected to further tilt the supply imbalance to 4.5 percent above demand this year, from 3 percent last year, KGI Securities (中信證券) said in its latest report.

In the face of rising supply and falling demand, Yu forecasts across-the-board losses for local flat-panel makers this year, with a loss of NT$5.4 billion for AU Optronics and NT$4.2 billion for Chi Mei. Smaller players Chunghwa Picture Tubes Ltd (中華映管) and HannStar Display Corp (瀚宇彩晶) may sustain serious losses of over NT$15 billion each, he added.

But, Eric Lin (林宜正), an analyst with Yuanta Core Pacific Securities (元大京華證券), appeared more optimistic, citing recent recovery in demand for LCD TVs.

Lin said the budding revival isn't likely to help panel makers get out of the woods soon, but it may speed inventory digestion.

While oversupply will continue to plague TFT-LCD panel suppliers in the first half of the year, the industry is expected to experience positive signs in the second half, Lin said.

According to sales information from retailers in the North American and Taiwan markets, where a significant 30-percent decline in prices for slim-screen TVs last quarter spurred demand, we expect to see better-than-expected demand for TVs in the second half of the year Lin said.

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