Investment research house Deutsche Securities Asia Ltd yesterday cut earnings forecasts for Taiwan's two biggest flat-panel makers, AU Optronics Corp (
Inventory manufactured in the first quarter and current quarter on over-optimism about lackluster sales-of television screen has prompted the industry leader, LG.Philips LCD Co, to consider reducing production after AU Optronics lowered equipment usage to stabilize panel prices.
concern
"Rising LCD [liquid-crystal-display] TV panel inventory in the second quarter remains a concern," said Deutsche Securities analyst Frank Lee (
High inventory would lead to faster than expected price decline in LCD TV panels in the next quarter, which in turn would eat into the profits of panel makers, said Lee, who held a more cautious view on the industry than its peers.
The cost of a 32-inch LCD panel for TVs would plunge to around US$350 in the third quarter from just under US$600 in January, Lee said.
Due to the expected steep price decline, Lee trimmed his earning forecast for AU Optronics and Chi Mei this year by 38 percent and 63 percent respectively, citing a weaker-than-expected third quarter.
Lee said that Tainan-based Chi Mei would earn NT$7.4 billion (US$226.19 million) this year rather than the NT$19.33 billion estimated in the middle of last month, primarily due to a bleak third quarter outlook.
Chi Mei would suffer losses of NT$1.3 billion next quarter, suffering a similar fate to LG Philips, which is expected to report losses for the current quarter, due to weaker inventory control and its focus on lower-margin 32-inch LCD TV panels, Lee said.
AU Optronics piled up a 35-day inventory during the January-March period, while Chi Mei manufactured 45 days' worth. Generally speaking, panel makers view inventory level of about four weeks as healthy.
To take a more aggressive control of inventory, Chi Mei would postpone the construction of a next-generation factory, the Chinese-language Commercial Times reported yesterday, citing information from equipment makers.
Chi Mei declined to comment on the report during the annual shareholders' meeting yesterday.
still profitable
Bigger rival AU Optronics would still be profitable at NT$1.1 billion next quarter, but that would represent a 42-percent decline from the first quarter's earnings, Lee predicted.
For the full year of 2006, AU would make NT$15.38 billion in earnings, compared to NT$25.67 billion estimated by Lee last month.
Deutsche Securities retained its "buy" rating on AU Optronics and Chi Mei, but it lowered the target prices for the stocks to NT$62 and NT$50 from NT$70 and NT$63 respectively.
That suggested an upside of more than 40 percent for both the stocks, compared with the closing prices of NT$43.8 for AU Optronics and NT$34.7 for Chi Mei on the Taiwan Stock Exchange yesterday.
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