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April 24, 2007 9:35 pm

AU Optronics calls halt to LCD race

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Taiwan’s AU Optronics on Tuesday called the end of the race to produce ever-larger liquid-crystal display panels for TVs, saying it would not expand production capacity and would instead give priority to becoming more profitable.

The strategic adjustment by one of the world’s largest makers of the panels comes as the company announced its worst quarterly results in years: a T$5.1bn ($150m) net loss for the first quarter after a slide in panel prices that has driven most panel makers into the red.

Lee Kuen-yao, chairman, said there was less justification for competing with rivals on having the most advanced fabrication plants with the largest-sized glass substrates as the flat-screen television market is maturing and the migration to larger-size fabs brings less cost advantage: “TV sizes will reach an end at a certain generation. Therefore we’ll sit back and watch, and then try to directly jump to this last generation once we can identify it.”

Unlike rivals Samsung and LG Philips, AUO does not own a brand but manufactures panels for others who use them in their own-brand sets and other electronics.

AUO raced to keep up with Korean and Japanese peers in past generations of process technology. But the company says this no longer makes sense for its business model beyond the 7.5th-generation technology it now uses in its most advanced fabs.

“Every new generation would bring your cost down to a certain extent. But above 7.5G, this formula has been turned upside down,” Mr Lee said.

He said sizes above 50 inches – those that would require capacity of more than 7.5G – were unlikely to become part of the TV mainstream market any time soon. Hsiung Hui, executive vice president, said AUO would leave it to branded electronics companies to spend lavishly on that market segment.

AUO plans to spend T$90bn on capacity this year and to add more 7.5G manufacturing space in 2008. It said capacity expansion would focus on the higher-margin panel manufacturing itself. It would outsource part of its module assembly if needed.

Adjustments intend to bring return on equity to a constant 15 per cent, said Chen Hsuan-pin, company president.

AUO gave a cautiously optimistic outlook for the industry. It said demand and prices had reached the bottom in February.

In the three months to June 30, the company expects shipments of television panels to rise by up to 25 per cent quarter-on-quarter, and prices to show a slight rise of up to
5 per cent.

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