AU Optronics Corp (友達光電), the biggest maker of liquid-crystal-display (LCD) panels in Taiwan, said net income more than tripled last quarter, but it planned to cut production by 10 percent this quarter to cope with a renewed slowdown because of sliding demand for TVs.
Net income jumped to NT$20.39 billion (US$670 million), compared with NT$5.92 billion a year ago, the company said in a statement. On a quarterly basis, that represented a decline of 17 percent from NT$26.99 billion earned in the first quarter after prices fell by a faster than expected 6 percent.
“[The weakening] macro economy significantly impacted on demand, which slid to a level lower than customers’ estimates and the company’s expectations in the last week of the second quarter,” financial executive Max Cheng (鄭煒順) told an investors’ conference.
“Customers will take one to two months to digest [excessive] inventory,” Cheng said.
Shrinking demand may bring down prices for computer and TV panels by an additional 5 percent to 15 percent in the July to September period, from an average US$168 per unit in the second quarter, he said.
Computer and TV panel shipments may inch up by 5 percent in the third quarter, compared with 21.85 million units in the second quarter, he said.
“To cope with the slowdown, AU Optronics will lower equipment loading by 10 percent in the third quarter, which used to be high season,” vice chairman Chen Hsuen-bin (陳炫彬) said. “A production reduction has not been seen in the past 10 years.”
Factory utilization will drop to 90 percent this quarter from 100 percent last quarter, Chen said. He blamed the subprime crisis in the US and rising inflation for the sluggish demand for electronics.
Consumers were less willing to shop for higher-priced LCD TVs with a screen bigger than 32 inches, the company said.
However, the company has no plans to trim capital spending of between NT$130 billion and NT$140 billion this year, Chen said.
“We don’t think there is a need to dramatically adjust our capital spending for this year, as we believe the recent slowdown will be a short-term. We will keep our capacity expansion for 2009 flexible to match the market situation,” he said.
Most analysts thought AU Optronics’ plan to cut output was a practical solution to help reduce oversupply, but they hoped to see more aggressive moves next year, said Jeff Pu (蒲得宇), who tracks the flat panel industry for Yuanta Core Pacific Securities (元大京華證券).
“I do not think the recent slowdown is a short-term thing, but a renewed downcycle for the LCD industry, which may extend into the first half of next year,” Pu said, adding that major flat panel makers were set to begin mass production in new factories next year.
Pu put a “hold” rating on AU Optronics with a target price at NT$43, implying a 1.3 percent upside in the next 12 months, from the closing price of NT$42.45 yesterday.
AU Optronics’ second-quarter revenues grew by 16 percent annually, or a 10 percent drop quarter on quarter, to NT$123.478 billion, the company said earlier this month.