LCD panel maker AU Optronics Corp (AUO, 友達光電) yesterday reported that net profit for last quarter more than halved as a persistent decline in TV panel prices eroded gross margin and drove down its bottom line to the weakest level in one-and-a-half years.
Net profit tumbled 52.6 percent to NT$4.2 billion (US$143.49 million) during the three-month period ending in December last year, compared with NT$8.86 billion in the third quarter of last year. That represented a 53 percent slump from NT$8.97 billion a year earlier, a financial statement showed.
Gross margin slid to 13.9 percent after panel prices fell 5.6 percent, compared with 17.5 percent in the prior quarter and 18.8 percent a year earlier.
Last year as a whole, net profit more than quadrupled to NT$32.36 billion, compared with NT$7.82 billion in 2016.
That marked the firm’s strongest annual net profit since 2008.
“Last year was the fifth consecutive profitable year for AUO, which is rarely seen in the LCD panel industry,” AUO chairman Paul Peng (彭双浪) told investors.
This year “is the best of times and the worst of times. It is a year full of challenges and opportunities for AUO,” Peng said. “Nonstop and dramatic capacity expansion from Chinese players might make oversupply a new norm.”
China is expected to become the largest-capacity supplier, surpassing Taiwan, Japan and South Korea, Peng added.
To brace for the change in the competition landscape, AUO said it aims to boost capacity cautiously and intelligently, while producing higher-priced, niche flat panels.
“We will not rush to join the capacity race, although 10.5G factories and OLED [organic LED] panels have become hot topics,” Peng said.
OLED panels are not a cure-all for flagship smartphones in light of the lukewarm sales of some handset brands, he said.
“We intend to maintain an optimal scale. Big is not necessarily beautiful,” Peng said.
AUO said it plans to ramp up production of 65-inch 8K TV panels in the first half of this year to cope with increasing demand for such ultra-high-resolution screens.
The firm said it would also produce more 18:9 aspect ratio handset panels, as they are becoming a “must-have” for mid to high-end smartphones.
AUO plans to increase capital spending slightly to NT$45 billion this year, from NT$43.9 billion last year.
The company also plans to ramp up production of a new 8.5G production line in the second half of the year.
AUO said it expects worldwide panel supply this year to grow between 6 percent and 8 percent year-on-year, approaching the growth of panel demand as developed countries enter a new TV replacement cycle.
However, the first quarter will still be a slack period, AUO said, adding that downward price adjustments are to extend from last quarter into this quarter, attributable primarily to shrinking TV demand.
Average selling prices for PC and TV panels are to dip by a low-single-digit percentage this quarter, while shipments of those panels are to contract by a mid-to-high-single digit percentage, AUO said.
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