AUO stops expansion to ease glut

AU Optronics Corp (友達光電), the world's third-largest maker of liquid-crystal displays, will delay expansion of its factories by almost a year after a global glut led to a record loss last quarter.

The company, which makes LCDs for Sony Corp, will hold off installing equipment at its second manufacturing line until the end of next year, Chairman Lee Kun-yao (李焜燿) said in an interview at its Hsinchu headquarters. The new plant had been scheduled for the start of the year, he said.

"The peak is over" for expanding production capacity, Lee said in an interview on May 2. "We don't want to invest in a money-losing business." Producers in the US$70 billion LCD market, including Samsung Electronics Co and LG.Philips LCD Co, will probably cut investment by 28 percent this year, the second consecutive yearly drop, according to Lehman Brothers Holdings Inc. Demand for screens used in TVs and computer monitors may pick up this year, AU Optronics said last month.

"These panel makers can benefit from stabilizing or even rising panel prices, which will definitely be good for profitability," said Jeffrey Su, an analyst at Merrill Lynch & Co in Taipei. He has a "buy" recommendation on AU Optronics.

Chi Mei Optoelectronics Corp (奇美電子), the largest Taiwan rival of AU Optronics, also slowed expansion after posting a loss last quarter. Chi Mei hasn't placed equipment orders for its newest LCD facility, chairman Frank Liao (廖錦祥) said in a May 3 interview.

Shares of AU Optronics gained 1.9 percent to NT$55, a three-year high, at 11:40am, and closed at NT$54.9 on the Taiwan Stock Exchange. Chi Mei stock rose 4.7 percent to NT$39.15, the highest in almost eight months, and closed at NT$39.

"The factory is just a skeleton right now," Liao said, declining to comment on when production may start.

The Tainan-based company in April delayed production at a sixth-generation factory, which makes screens as large as 37 inches diagonally, from the end of this year until next year.

Global LCD supply will rise 35 percent this year, compared with a 40 percent growth in demand, according to Taipei-based Witsview Technology Corp (聯景科技), which tracks the industry.

Last month, Samsung and LG.Philips, the world's two biggest LCD panel makers, said there will be a shortage in the second half. The result: screen prices are recovering.

Prices of TV panels measuring 42 inches diagonally may fall 1.8 percent this quarter, slowing from a 9.5 percent decline in the first three months of the year, according to WitsView.

"TV panels are stabilizing," Lee said. "They usually fall 3 to 5 percent quarter on quarter. It's an important signal." Sony, the world's second-largest consumer electronics maker, said last month prices of its Bravia LCD TVs will be flat or higher in the year ending March 31, 2008, because of pricier models.

Shares of flat-panel makers have recovered since the end of the first quarter. AU Optronics rose 14 percent since March 31, against a 0.2 percent decline in the prior 12 months. Chi Mei gained 8.4 percent, from a 21 percent drop in the previous year.

Samsung shares gained 2.3 percent since the first quarter, compared with an 11 percent decline in the year ended March 31.

LG.Philips climbed 18 percent after falling 25 percent in the prior year.

AU Optronics's capital spending for next year "will be lower" than the projected NT$95 billion (US$2.9 billion) investment this year, Lee said. The company is delaying equipment installation at its second 7.5-generation LCD panel factory, which will make screens measuring 40 inches diagonally or larger, he said.

Seoul-based LG.Philips, the world's second-biggest LCD panel maker, cut its spending plan for this year by two-thirds to about 1 trillion won (US$1.1 billion). Suwon, South Korea-based Samsung, the world's biggest, plans to lower its LCD spending 44 percent this year.