The local supply chain for thin-film-transfer liquid-crystal-display (TFT-LCD) panels may need extended loans from state-controlled banks, Citigroup said.
In a report released yesterday, Citigroup said that since the central bank has been keen on maintaining a stable NT dollar rate, leaving Taiwanese vendors “at a disadvantage.”
The steep depreciation of the South Korean won this year has helped South Korean flat panel makers undercut the competitiveness of their Taiwanese counterparts. As of Monday, the NT dollar has seen its value drop by 3.31 percent against the US dollar this year, compared with a 36 percent depreciation of its South Korean counterpart.
“The Korea TFT-LCD names have more room to cut prices and gain global market share, not only on panel but also LCD TV,” Citigroup analyst Andrew Lu (陸行之) wrote in the report. “This could put pressure on the entire Taiwan TFT-LCD supply chain as the Taiwan Central Bank exerts more control over NT dollar stabilization.”
The local TFT-LCD supply chain includes panel makers such as AU Optronics Corp (友達光電) and Chi Mei Optoelectronics Corp (奇美電子), as well as panel driver integrated circuit (IC) designer Novatek Microelectronics Corp (聯詠) and panel driver IC foundry service provider Vanguard International Semiconductor Corp (世界先進).
The global economic downturn has reduced demand for flat-panel TVs and PCs, forcing manufacturers to slash output and lower forecasts. On Monday, AU Optronics and rival Chi Mei Optoelectronics both lowered their respective fourth-quarter shipment forecast after reporting dismal revenue figures for last month.
AU Optronics posted NT$17.75 billion in revenue last month, the lowest in 41 months and down 34.9 percent from the previous month, while Chi Mei Optoelectronics saw its revenue plunge 41 percent to NT$12.2 billion over the same period, the companies said in statements.
Both companies also lowered their shipment forecasts for the current quarter, with AU Optronics expecting utilization rate to fall to around 60 percent while Chi Mei predicting shipments would drop between 35 percent and 40 percent from the third-quarter level.
Added to concerns are fewer outsourcing orders from customers who are relying on inhouse suppliers to cut costs, Citigroup said.
“As Korean LCD TV makers adopt insourcing more aggressively, we estimate the Korea panel vendors will have 20 percent to 25 percent better utilization than Taiwan vendors’ at 50 percent to 60 percent by the fourth quarter,” Lu wrote.
Against this backdrop, the local TFT-LCD supply chain is likely to see its fourth-quarter revenue decline between 40 percent and 45 percent, down from a previous estimate of a drop of between 25 percent and 30 percent, Citigroup said in the report.
The blended average selling price for these makers will be slashed by 25 percent this quarter from the third quarter, bigger than Citigroup’s previous forecast of a cut between 15 percent and 20 percent, the report said.
“We expect these issues to result in lower sales and increased losses in the fourth quarter and into 2009 for Taiwan TFT-LCD supply chain vendors,” Lu wrote.
To avoid losses, panel vendors need to cut production costs by at least 5 percent to 10 percent and lower capital expenditures to reduce inventory to a more reasonable level, the report said.
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