Fri, Sep 10, 2004 page11

• LCD makers face losses on overcapacity: analysts

  OUTPUT While factories are adding to the excess supply, pushing prices lower than production costs, sales are not expected to increase until LCD TVs become even cheaper

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  Samsung Electronics Co and rival makers of liquid-crystal displays (LCDs) used in computers and televisions may face losses in their display units by next year owing to overcapacity, investors and analysts said.

  Samsung, the world's biggest LCD maker, and second-ranked LG Philips LCD Co, both in South Korea, are adding to excess supply in a market worth US$36 billion, pushing prices below production cost, according to Taipei-based researcher WitsView Technology Corp (聯景科技) and investors.

  Prices of LCDs are tumbling while consumers remain reluctant to pay up to US$5,000 for flat-screen TVs. Consumers won't buy LCD TVs until the prices drop to about three times what it costs to buy a tube television, investors such as Charles Isaac said.

  "Panel prices have to keep coming down," said Isaac, who counts shares in AU Optronics Corp (友達光電) among the equivalent of US$11 billion that Zurich-based Swissca Portfolio Management invests in stocks globally. "We haven't reached the level where everyone has to buy an LCD TV."

  Chi Mei Optoelectronics Corp (奇美電子), Taiwan's second-largest maker of flat-panel displays used in computers and televisions, this week said it is delaying building a factory to make so-called 7.5-generation glass panels. The company will reschedule the opening of the factory to coincide with a rebound in market demand.

  The price of a benchmark panel measuring 17 inches diagonally has fallen 16 percent to US$255 since April and may slide 9 percent by mid-September, WitsView said. Screen makers, which overestimated demand, will still triple output of 32-inch panels for TVs by March, the researcher said.

  "Second-tier manufacturers may post losses by the fourth quarter," said Karen Chang (張馨文), a fund manager at International Investment Trust Co (國際投信) in Taipei.

  "Prices, mainly for 17-inch panels, are at the same level as production cost," Chang said.

  Samsung and AU Optronics, the world's third-largest LCD maker, will set the pace in the expansion of output this year as total LCD industry investment exceeds US$9 billion, researcher DisplaySearch said in a June report. Screen suppliers will install 16 percent more production capacity this year than in the previous three years, DisplaySearch said.

  Output from so-called sixth-generation factories that make TV screens measuring 32 inches and larger will more than quadruple by June next year compared with the same period this year, WitsView said.

  "It's not possible to expect TV demand to increase by three to four times," said Henry Wang, a WitsView analyst.

  In the third quarter, Sharp will start production from its sixth-generation factory in Japan, according to WitsView.

  LG Philips LCD will open a similar plant in the fourth quarter, the researcher said.

  By the first quarter next year, AU Optronics and smaller Tai-wanese rival Chunghwa Picture Tubes Ltd (中華映管) will open sixth-generation factories. In the same period, Samsung will start production from a seventh-generation plant that can make 40-inch flat TV screens, WitsView said.

  "We expect sharper price cuts in coming quarters," said Jay Choi, an analyst with Citigroup Global Markets in Seoul. "LCD supply looks set to outstrip demand, with no immediate pickup seen in LCD TV demand."

  Still, recent price cuts may help stimulate demand, according to WitsView. Screen buyers take as many as six weeks to respond to price changes, the researcher said.

  "It's very important to watch information on the market in the next few weeks," Chang said. "We know there will be overcapacity if TV demand doesn't increase. Oversupply may ease by the second half of next year."
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