Market researcher DisplaySearch yesterday suggested liquid-crystal-display (LCD) panel makers lower factory utilization by around 10 percent in order to divert an expected severe glut and drastic price erosion in the slack first quarter of next year.
DisplaySearch made the comments as it predicted oversupply in computer and television panels would widen to 14 percent during the current quarter due to slower-than-expected computer demand on delay of Microsoft Corp's new Vista Operating system as well as double booking.
Last quarter, supply only exceeded demand by 8 percent, the Austin, Texas-based researcher said.
"We have to recognize this is a seasonal market," DisplaySearch president Ross Young said on the sideline of a conference in Taipei.
"So it is important not to drive to maximum capacity, otherwise there will be significant oversupply and a very dramatic price decline like we had last year which means less profitability for the whole industry," Young said.
Young projected oversupply would deteriorate to around 20 percent in the first three months of next year, if LCD panel makers did not adjust their production plan.
That was in spite of a possible recovery in demand for computer panels helped by the launch of Microsoft's long-delayed operating system, he added.
Young said that as past experience suggested that price cuts would not spur demand, "We definitely believe the industry should try to reduce utilization to minimize price reductions for the first quarter of 2007."
"Even if you reduce prices, volume won't go up in the first quarter as the season is very slow," Young said.
Last year, prices for computer panels fell 10-11 percent in the first quarter, but that did not boost the slowing demand as panel sales dropped 8 percent, according to Young.
Major panel makers AU Optronics Corp (友達光電) and Chi Mei Optoelectronics Corp (奇美電子) told investors late last month that they would cut factory usage during slack seasons as the measure had helped the industry recover from the latest trough faster than before.
Concerns on an expected slowdown in the first quarter of next year have capped the stock prices of Taiwan's major panel makers, said Frank Su (蘇穀祥), a panel industry analyst with BNP Securities, in a short investment note released on Thursday.
However, Su said indications were that Taiwanese panel makers had decided to cut their equipment utilization rate by 5-10 percent next month to ensure inventories remain at a healthy level in the wake of slowing orders.
Su expected bigger rival LG.Philips LCD Co would follow suit.
Su reiterated his "buy" call on AU Optronics with target price at NT$58.5, implying 35 percent upside from the stock's closing price of NT$43.25 yesterday.