AU Optronics Corp (AUO, 友達光電), the world’s third-biggest maker of liquid-crystal displays (LCD), may shut some production lines after the company missed a second-quarter sales target because of lower-than-expected demand.
The company may cut output this quarter by suspending some production lines for the first time in more than a year, AUO executive vice president Paul Peng (彭雙浪) said in a telephone interview yesterday.
Sales in the second quarter dropped 9.6 percent sequentially to NT$123.46 billion (US$4.1 billion), AUO said in an e-mailed statementafter the market closed yesterday.
The LCD maker said in April that second-quarter sales could fall by a “mid to single digit” percentage.
JPMorgan Chase & Co described the company’s sales last month — which fell 17 percent from May — as a “shock to the market.”
AUO led shares of LCD makers lower yesterday after Lehman Brothers Holdings Inc cut its share-price targets for flat-panel producers, citing an industry glut that could persist until the first half of next year.
AUO attributed weaker-than-expected sales in the second quarter to “cautious inventory control” by customers, as well as uncertainty about seasonal demand given the current macroeconomic environment.
Prices of LCD computer monitors could fall 8 percent this month from last month’s average of US$118 — the biggest decline since May 2006, Taipei-based researcher WitsView Technology Corp said on Monday, citing slowing demand in China.
The suspension of production lines would probably last for one to two days, Peng said.
“We may also defer some of the equipment spending from the fourth quarter to next year,” Peng said.
AUO shares tumbled 5.8 percent to close at NT$44.90 on the Taiwan Stock Exchange, the lowest since March 7 last year.
The company may have to match its rivals in offering customers rebates before lower prices prompt demand to recover, analysts at JPMorgan, including Taiwan-based Lin Liang-chun, wrote in a report yesterday.
Lehman and UBS AG cut their share-price target for AUO at the end of last month on concern earnings had peaked and LCD panel prices would decline amid a glut as the global economy slows.
Citigroup analyst George Chang (張家麒) said his company checks suggested that panel makers had already initiated production adjustments in the face of slowing demand.
But Chang said that AUO remains the brokerage’s top pick in Taiwan given its “strong cash flows and more diversified customer/product portfolios,” he wrote in a client note released yesterday.
Chang has a “buy” recommendation on AUO with a low-risk rating. His target price for the stock is NT$88.
AUO last shut production lines for about two days in the first quarter of last year.
The company will give guidance on its factory plans at an investor conference on July 24, Peng said.
Peng didn’t say by how much the company would cut capital spending this year. AUO forecast in May that expenditure would double to NT$140 billion from last year’s level.
Shares of LG Display Co, the world’s second-biggest LCD maker, lost 2.3 percent in South Korea, while Chi Mei Optoelectronics Corp (奇美電子), the fourth biggest, dropped 6.9 percent, near its daily limit, in Taipei trading.
Additional reporting by Kevin Chen
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