LCD panel maker AUO Corp (友達) yesterday said that its second-quarter financial target was no longer achievable, as a rapidly deteriorating macroeconomy has dealt a heavy blow to consumer electronics sales as people tighten their belts.
The Hsinchu-based company blamed a slew of unfavorable factors to its bleak outlook, including Russia’s prolonged war on Ukraine, which has sent prices of global crude oil and natural gas soaring, leading to surging inflation in most countries.
The conflict has also reduced access to select specialty chemicals and industrial gases used by panel and chipmakers, as Ukraine is a major supplier.
Photo courtesy of AUO CORP
In addition, port congestion in the US’ west coast has significantly boosted transportation costs, adding to operating challenges, Peng said.
“We have seen more gray rhinos, or black swans, so far this year, than we have thought at the end of last year,” AUO chairman Paul Peng (彭双浪) told shareholders at the company’s headquarters yesterday.
Drastic measures taken by major central banks to curb rising inflation risk further have dampened the consumer electronics market this year, as people scrimp and save to buy daily necessities, rather than consumer electronics, Peng said.
AUO also attributed China’s “zero COVID” policy and lockdowns to the latest industrial slump, as people were confined at home, affecting shopping.
Companies shut down operations to help curb infections. AUO, for one, suspended production at its Suzhou and Kunshan factories in April and last month, Peng said.
As a result, “we are unable to hit our business target for the second quarter. We are still working hard to narrow the gap,” Peng said. “Our businesses have been severely affected by the macroeconomic weakness.”
Two months ago, AUO expected its LCD panel shipments this quarter to dip by 1 to 3 percent sequentially.
Average selling prices would drop by 6 to 9 percent, it told investor at the time.
As customer demand is declining, AUO said it would adjust factory utilization to cope with changes in the market.
In response to shareholders’ concern about a potential merger with local rival Innolux Corp (群創), AUO said: “It would not be a good strategy if a merger only expands a company’s scale, but does not improve its value.”
“AUO has already reached an optimal scale,” Peng said. “Companies with large-scale operations may face greater pressure to sell capacity during downturns.”
The exit of AUO’s long-standing board director and former chairman Lee Kuan-yao (李焜耀) from its newly staffed board sparked speculation about the merger.
AUO shareholders yesterday approved a proposal to reduce 20 percent of its capital to about NT$76.99 billion (US$2.59 billion) and return the cash to shareholders by distributing a special cash dividend of NT$2 per common share.
Shareholders also approved a regular cash dividend distribution of NT$1 per common share, based on the company’s earnings per share of NT$6.44 last year.
In addition, shareholders approved a three-year cash dividend distribution plan totaling at least NT$55.77 billion from this year to 2024.
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