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Chunghwa reveals big Q2 profits

By Lisa Wang
STAFF REPORTER
Wednesday, Jul 30, 2008, Page 12

Chunghwa Picture Tubes Ltd (CPT, 中華映管), the nation’s third-largest liquid-crystal-display (LCD) panel maker, yesterday said second quarter earnings more than doubled, helped by rising demand for its high-margin products, but it planned to lower factory usage by 10 percent after a recent slump in demand.

The move came in the wake of moves by LG Display Co and AU Optronics Corp (友達光電), which said they planned to reduce production by 10 percent quarter on quarter in the July to September period to cope with a new overcapacity-driven downturn. Revenues dropped 6.4 percent year-on-year to NT$35.15 billion (US$1.14 billion) last quarter.

During the second quarter, CPT’s net income jumped to NT$1.02 billion in the quarter ended June 30, compared to NT$455 million a year earlier.

“We have sold more better-margin products such as 22-inch LCD panels and 37-inch panels for televisions. And we have improved our cost-efficiency by more than 10 percent over the past year,” chief executive James Wu (巫俊毅) said.

Demand started diminishing in the middle of last month as mounting inflation and a prolonged subprime mortgage crisis kept consumers from spending on electronics, which has lead to a drastic decline in panel prices, company president Kay Chiu (邱創儀) told investors yesterday.

“We have begun cutting production in July as our inventory rose to a high level,” Chiu said.

Inventory turnover increased to 57 days last quarter from 37 days in the previous quarter, according to a company statement said.

To process the stockpile, CPT planned to trim output by 10 percent in the third quarter, Chiu said. That would bring the company’s factory usage to 85 percent this quarter, from 95 percent in the second quarter.

Because of the adjustment, CPT cut its computer and TV panel shipment target by nearly 7 percent for this year to 26.9 million units from a 28.7-million-unit estimate early this year, the company said.

CPT also postponed a plan to build a factory as its strategic partner was concerned about the recent slowdown, Chiu said. The company had hoped to come up with a substantial investment plan with its partner by the end of last month.

“CPT will suffer losses in the third quarter as demand may recover slowly from a sudden reversion in June. Pricing pressure will continue to be heavy,” said Roger Yu (游智超), an LCD industry analyst with Polaris Securities Co (寶來證券).

“We don’t expect any seasonal demand in the traditional high season [in the third quarter],” Yu said.

Sluggish demand and oversupply may cause a 7-percentage-point decline in CPT’s gross margin in the July to September quarter, compared with 16.9 percent in the second quarter, Yu said.

“Prices will go down further at a slower pace than in July as customers continue strict control of their inventories,” said Brian Lee (李學龍), a CPT vice president.

Computer and TV panel prices may drop about 8 percent month on month this month, market researcher DisplaySearch forecast.
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