AU Optronics turns losses around in second quarter

After posting two consecutive quarterly losses, AU Optronics Corp (友達光電), Taiwan's largest and the world's third-largest maker of flat-panel displays used in computer monitors and televisions, saw a turnaround in the second quarter resulting from improvement in manufacturing efficiency and cost control, company officials said yesterday.

For the three months through June 30, AU Optronics' consolidated revenue reached NT$46.247 billion (US$1.462 million), a 19-percent increase from the first quarter. Net income for the period totalled NT$470 million, or NT$0.13 per share.

Shares of AU Optronics jumped NT$2.1 to close at NT$52.7 on the Taiwan Stock Exchange yesterday, before the release of its earnings results.

"I think the result is in line with market expectations," company chairman Lee Kun-yao (李焜耀) told an investor's conference yesterday. "We expect business to recover at a healthy pace in the next half of the year."

Lee said the company's cost control measures paid off in the second quarter, which enabled AU Optronics to see business gradually recover. One of the measures was to lower material costs by 4 percent through the purchase of cheaper parts, he added.

A change in product mix and stabilizing panel prices also helped to push up the company's gross margin, which reached 6.8 percent in the second quarter from 3.2 percent in the first quarter, said Max Cheng (鄭煒順), chief financial officer of AU Optronics.

As a result of stronger demand, the company increased shipments of panels used in liquid-crystal-display (LCD) TVs, especially 32-inch models, from 9 percent to 12 percent, Cheng said.

Revenues from flat panels used in TVs became the second-largest source of AU Optronics' income after those used in PC monitors, growing from 13 percent to 18 percent, he said.

Helen Huang (黃玉惠), executive director of Goldman Sachs' Asia-Pacific investment research division, said the results are slightly better than expected, as analysts thought AU Optronics would at most break even in the second quarter.

The company has also done a good job of boosting its profit margin, which is similar to that of bigger rival LG Philips LCD Co, despite having a smaller market share than LG Philips, Huang said.

AU Optronics' share of the market for larger panels is 13 percent, compared with LG Philips' 24 percent, she said.

But after operating at full capacity in the fourth quarter, AU Optronics needs to be careful of losing money due to idle factory capacity in the first quarter of next year, as demand usually peaks before Christmas and slumps in the next quarter, she warned.

By the end of June, installed capacity of the firm's sixth-generation (6G) fab reached 25,000 units. This figure will shoot up to 60,000 units to meet the expected demand for the products, said Hsiung Hui (熊暉), AU Optronics' executive vice president.

With demand expected to improve in the third quarter, AU Optronics plans to run at full capacity to ship 10 percent more panels measuring more than 10 inches this quarter compared with the second quarter, and increase shipments of medium and small-sized panels by more than 20 percent, Hsiung said.

The demand will further drive up prices, Hsiung said.

The largest price gains are predicted for flat panels used in notebook computers with 15-inch or 15.4-inch screens, which are expected to rise above US$20 per unit, followed by those used in 17-inch PC monitors with a US$10 increase per unit, while those used in 15-inch PC monitors and 20-inch TVs will rise by US$5 per unit, Hsiung said.