AUO Corp (友達) yesterday cut capital spending by 20 percent to NT$36 billion (US$1.2 billion) this year from NT$45 billion, and suspended the construction of a new 8.5-generation production line in central Taiwan to cope with a severe downcycle after the LCD panel maker last quarter posted its first loss in about two years.
The slump in the industry and the weakness of AUO’s financial results reflect macroeconomic headwinds, including China’s COVID-19 lockdowns, Russia’s invasion of Ukraine, energy supply constraints and soaring inflation, the company said.
Additionally, the global economy is faced with a potential recession following a series of interest rate hikes, it said.
Photo courtesy of AUO Corp
“The latest downcycle came abruptly and exerted a broader impact,” AUO chairman and CEO Paul Peng (彭双浪) said at a teleconference yesterday.
“International factors have weighed on demand and we have difficulties controlling those external factors,” he said.
Previous downturns were caused by panel oversupply, but this one is much different, as an unfavorable macroenvironment has crippled consumers’ purchasing power and depressed demand for TVs, PCs and smartphones, he said, adding that recovery to normal levels is expected over an extended period.
“Clients are cutting orders and slowing down pulling in delivery as they prioritize efforts to digest excessive inventory,” Peng said.
With adverse conditions expected to last for a while, the company is slowing its capacity expansion and strictly managing inventory, he said.
AUO expects shipments to shrink about 15 percent quarterly this quarter, while it aims to keep average selling prices stable by improving its product offerings, Peng said.
Prices tumbled 13.63 percent quarterly and 23.83 percent annually to US$374 per square meter last quarter, he added.
The company also plans to adjust factory utilization, which stood at 70 percent last quarter, to counter market volatility this quarter, he said.
AUO incurred net losses of NT$5.63 billion last quarter, the first loss since the second quarter of 2020. It reported net profit of NT$5.16 billion in the previous quarter and NT$19.54 billion a year earlier.
Shipments shrank 18.7 percent sequentially and 23.2 percent annually to 4.92 million square meters last quarter, while gross margin fell to 2.7 percent, from 14.3 percent in the preceding quarter and 28.7 percent a year earlier.
Local rival Innolux Corp (群創) also drifted into the red with losses of NT$4.74 billion last quarter, the company reported yesterday.
It posted net profit of NT$1.89 billion in the first quarter and NT$21.42 billion a year earlier.
Gross margin plunged to 1.2 percent last quarter from 12.3 percent in the previous quarter and 33.1 percent a year earlier.
Innolux said shipments of TV and PC panels this quarter are expected to be flat from last quarter.
Average selling prices are expected to drop by a high single-digit percentage this quarter, while shipments of small and medium-sized panels are expected to plunge about 18 percent from last quarter, the company said.
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