AU Optronics Corp (友達光電), the world's third-biggest maker of liquid-crystal-display (LCD) panels used in computers and televisions, is reducing production to avoid further price erosion, a company executive said yesterday.
The company hopes its peers will follow suit in order to prevent excessive inventory from further bringing down panel prices, said Hsiung Hui (熊暉), a vice president of AU Optronics, on the sidelines of a forum arranged by market researcher DisplaySearch.
"Panel makers will feel the pinch in the third quarter in light of ongoing high factory usage," Hsiung said, adding that the overage could be leveled off next month, or in July, if flat-panel makers worked to lower output.
It almost became a norm for AU Optronics to reduce factory utilization rate during downcycles over the past three years, according to Hsiung.
Compared to the industry's last trough in 2004, the inventory is currently not as high as it was, but panel manufacturers needed to take precautions against a price crunch caused by piling inventory, Hsiung said.
In the first quarter, AU Optronics increased 18.4 percent to NT$22.69 billion from NT$19.17 billion in the final quarter of last year. Inventory turnover also grew to a relatively high level of 35 days from 28 days during the same period.
Overcapacity does not necessarily lead to the decline of panel prices, but a piling-up of panel inventory does as historical data shows, Hsiung told the annual DisplaySearch forum in Taipei.
Hsiung said AU Optronics' second-quarter earnings would weaken from the first quarter's NT$6.65 billion as price decline would outpace the company's cost-saving efforts.
Hsiung expected prices for computer panels to stabilize next month, but the possibility of a price hike was limited.
Rival Chi Mei Optoelectronics Corp (奇美電子) said it would take similar steps to its peers, if the demand sagged, company spokesman Eddie Chen (陳彥松) said.
Chi Mei told investors last month that inventory was a concern and it would attempt to minimize the inventory to a manageable level this quarter.
DisplaySearch president Ross Young expected margins to erode in the second quarter of this year as companies were adding capacity after accumulating excessive inventory last quarter.
But, Young said "inventory has been a concern in recent years. It will become less of a concern because of this active attempt to reduce utilization." The panel makers' move would help stabilize the pricing environment, he said.
Young said they did see a spike in the US TV market for inventory in the pipeline, but for Europe, which accounted for almost half of the world's LCD TV sales, it was still early to tell as World Cup related demand would not start until next month.
"It is too early to determine [now] whether inventory will be a problem," he said.
The Austin, US-based research house forecast revenues of flat panels including LCD panels, and plasma-display panels, would grow at a 10-percent composite average growth rate to US$120 billion in 2010.