Sat, Jul 30, 2005 - Page 10 News List

Chi Mei unfazed by third quarterly loss

SAVING COSTS The nation's second-biggest flat-panel maker said it expects to return to profitability this quarter, and will speed up moving part of its operation to China


Chi Mei Optoelectronics Corp (奇美電子), the nation's second-biggest maker of flat panels for computers and televisions, yesterday posted its third consecutive quarterly loss in the three months to last month, citing sluggish production in its 5.5-generation fab and comparatively high costs.

But company officials said the second-quarter loss is narrower than that of the first quarter and the company expects to return to profitability this quarter.

The Tainan-based company saw a second-quarter net loss of NT$1.68 billion (US$52.7 million), or NT$0.44 per share, compared with a net loss of NT$19.7 billion in the first quarter and net income of NT$9.01 billion a year earlier. Sales in the second quarter, however, grew 1.3 percent to NT$30.69 billion from last year and 14.9 percent from the first quarter.

Besides the lower-than-expected output by the 5.5-G fab as a result of technical problems, profit was eroded by the costs of goods, which amounted to NT$29.56 billion, according to the company's income statement.

Affected by the poor result, shares of Chi Mei fell NT$1.80 to close at NT$46.85 on the Taiwan Stock Exchange yesterday.

"We'll speed up moving part of our operation to China to save costs, as well as buying more cheaper parts from China," company president Ho Jau-yang (何昭陽) said at an investor conference yesterday.

While most flat-panel makers have shifted their module assembly to China, Chi Mei merely outsourced part of the operation to Westinghouse Digital Electronics (Ningbo) Ltd in China.

As a result, the company plans to file an application to the Ministry of Economic Affairs' Investment Commission to set up a liquid-crystal-display (LCD) module assembly plant in China, as Chi Mei has been proposing since last year, Ho said.

Chi Mei originally planned to cut its total costs by 5 percent to 10 percent in the first half of the year, but only reached 4 percent, Ho said. With the migration and sourcing plans, the company expects to lower its costs by between 5 percent and 10 percent in the next half of the year, he said.

The timetable, location and amount of investment are still under evaluation, company spokesman Eddie Chen (陳彥松) said.

While focusing on the production of flat panels for TVs, Chi Mei plans to increase shipment of panels used in computer monitors, as prices of these flat panels -- especially those of 19-inch panels -- have seen a significant surge caused by strong demand, Ho said.

Therefore, the company predicts a booming market in the second half of the year and aims to boost its production to 4.5 million units. It may even challenge the 5-million-units level, according to Ho.

The production in its 5.5-G fab, which is used to churn out mainstream 32-inch LCD TVs, will be increased after some technical problems are resolved, Ho said.

Ho estimated that world demand for LCD TVs will reach 21.5 million this year and Chi Mei hopes to earn 25 percent of the market share by the end of the year, up from the current 20 percent.

As a result of the strong market demand, prices will remain stable and keep companies profitable, he said.

"We are confident that we can turn around in the third quarter and start to make a profit in the fourth quarter," Ho said.

Because of the stronger-than-expected demand for LCDs used in personal-computer monitors that will help operating margins recover in the second half of the year, stocks of Chi Mei, along with its two largest rivals LG.Philips LCD Co and AU Optronics Corp (友達光電), were raised by Credit Suisse First Boson, according a report released by the company yesterday.

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