Wed, Jul 26, 2006 - Page 12 News List

AUO's profits fall on weak panel prices

SHARP DROP AUO said shipments should rise in the third quarter in line with seasonal demand, but an analyst forecast losses as panel prices could continue their downtrend

By Lisa Wang  /  STAFF REPORTER

AU Optronics Corp (AUO, 友達光電), the world's third-largest maker of liquid-crystal-display (LCD) panels, yesterday reported a sharp 60 percent drop in its second-quarter net income from a year earlier as panel prices plunged faster than expected because of industry overcapacity.

But, "the industry [looks] on track for a gradual recovery," AU Optronics chairman Lee Kun-kao (李焜耀) told investors.

"We recently found prices for certain products have started going up as demand is improving in line with the seasonal trend," Lee said.

AU Optronics posted a net profit of NT$182 million (US$5.55 million), or NT$0.03 per share, during the quarter ending June, compared with earnings of NT$470 million, or NT$0.08 per share, a year ago, according to the company's statement.

On a quarterly basis, second-quarter net income was down 97.3 percent from NT$6.65 billion in the first quarter.

Revenues for the second quarter slid 31.7 percent year-on-year, or 8-percent quarter-on-quarter, to NT$60.9 billion.

Despite the sharp drop in earnings, the Taiwanese company still outperformed its bigger rival LG.Philips LCD Co, which reported a quarterly loss of US$339 million on July 11.

"Panel prices plunged drastically [in the second quarter] ... That severely impacted our bottom line," AUO's chief financial officer Max Cheng (鄭煒順) said.

The prices of LCD panels for personal computers fell 30 percent year-on-year, or 18 percent quarter-on-quarter, in the second quarter. This compares with an average quarterly drop of less than 10 percent, according to the company.

Cheng believed, however, that panel prices would stabilize by the end of the third quarter.

Cheng also forecast that third-quarter shipments would rise 12 percent as factory utilization rate rises to 95 percent this quarter from below 85 percent in the second quarter to cope with increasing seasonal demand.

However, rising shipments may not be a guarantee of increasing profits.

"As prices will drop further, AU Optronics may swing into the red in the third quarter," said Wang Wanli (王萬里), who tracks the flat-panel industry for Credit Suisse First Boston in Taipei.

Wang said AU Optronics' second-quarter results were near his estimate of NT$224 million in net income, or NT$0.04 per share, but the non-operating loss from BenQ Corp (明基) was larger than expected.

AU Optronics booked about NT$400 million in one-time loss from its 5 percent holding in BenQ.

BenQ, the nation's biggest handset maker, was struggling to turn around losses after taking over Siemens AG's money-losing mobile unit last October.

BenQ posted a loss of NT$4.9 billion in the first three months of the year.

To sustain its profitability during the next industrial troughs, AU Optronics yesterday said it planned to cut its proposed capital expenditure of NT$100 billion for new equipment next year between 30 percent and 40 percent.

"It's good to see a reduction in capex as we haven't detected any signs of a panel shortage over the next two years," Wang said.

But for this year, AU Optronics said it intended to keep its proposed capex of NT$95 billion.

Its rival LG.Philips said on July 11 that it would cut its capital spending this year by 28.5 percent.

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