Fri, Oct 27, 2006 - Page 12 News List

Chi Mei Optoelectronics remains in the red in Q3, but expects a Q4 turnaround

By Jason Tan  /  STAFF REPORTER

Chi Mei Optoelectronics Corp (奇美電子), the nation's second-largest maker of flat-panel displays, reported a loss for the second straight quarter owing to falling panel prices but said it expects to return to profits this quarter.

Chi Mei's net loss in the third quarter widened to NT$1.41 billion (US$42 million), or NT$0.27 per share, compared with net income of NT$3.4 billion, or NT$0.7 per share, in the same period last year.

Sales rose 16.6 percent year-on-year to NT$48.176 billion, but gross margin shrank to 4.6 percent from 14.6 percent a year earlier.

"The losses were greater than we expected," Chi Mei's president Ho Jau-yang (何昭陽) told an investors' conference yesterday.

The company was expecting third-quarter losses to remain at the same level as the second quarter, which saw the first loss in four quarters at NT$944 million.

The company attributed the losses to the drastic fall in panel prices because of high inventories.

Average selling prices for panels, especially 37 inches and 42 inches, plunged as a result of stiff competition, Ho said.

The company managed to cut its inventory to NT$22.5 billion from NT$26.6 billion the previous quarter but still fell slightly above its target of NT$20 billion.

For the first three quarters, Chi Mei shipped a total of 6.6 million TV panels. It is still aiming to ship 10 million units by December, and projects to ship 16 million next year, Ho said.

On Wednesday, rival AU Optronics Corp (友達), the world's third-biggest LCD maker, also posted disappointing results. Third-quarter net profit only reached NT$613 million owing to sharp price falls and increased non-operating expenses.

Chi Mei expects to return to profitability this quarter as panel prices recover and shipments rise.

"We are optimistic about fourth-quarter [prospects] with demand projected to exceed supply," Ho said.

The firm's TV panel shipments in the current quarter are expected to rise 20 percent over the third quarter, while office-automation (OA) panels for monitors and notebooks are forecast to increase 10 percent.

Average prices for 32-inch panels and below will remain flat, while those for 37 inches and above will fall slightly and OA panels will rise edge up, Ho said.

Looking ahead, Chi Mei will put profitability ahead of raising production or market share, Ho said.

He added that the firm would cut production during seasonal lows, such as the first half of the year, and offer a more comprehensive range of panel sizes for clients.

An analyst at UBS AG, who declined to be named, said that cutting production is a way to adjust to the seasonal demand but it involves a great deal of risks.

"A wrong cut at the wrong time will undermine a panel maker's profitability," he said.

Shares of Chi Mei closed down 1.5 percent to NT$34 at the Taiwan Stock Exchange yesterday, before the company released its third-quarter results.

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