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July 26, 2006 1:25 am

AU Optronics cuts back expansion plans

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AU Optronics, the world’s third-largest flat-panel maker, has cut back its expansion plans for next year to avoid further over-capacity, price falls and reductions in profitability.

“Our capital expenditure in 2007 will be 30 to 40 per cent lower than the over T$100bn ($3bn) originally planned,” said Chen Hsuan-bin, president. “That is a big adjustment that we hope will help the entire industry.”

The cut, which followed the announcement of AUO’s lowest quarterly net earnings in more than a year, echoes a similar move by LG Philips. The much-touted boost in demand for flat-screen TVs for the World Cup failed to materialise, sending prices for the liquid crystal displays plummeting as inventory piled up.

Even so, in contrast to LG Philips, AUO remained marginally profitable in the second quarter. Net earnings in the three months to June 30 were down 97.3 per cent quarter-on-quarter to T$182m, halving the company’s gross margin to 8.5 per cent, as average selling prices for larger panels dropped by 16.5 per cent.

AUO predicted a recovery during the current quarter, emphasising that prices were bottoming out. Prices at the end of September were expected to be higher than at the end of June, said Hsiung Hui, vice-president. AUO said it expected shipments to rise 12 per cent quarter-on-quarter, with television panel shipments growing by 18 per cent.

Analysts said AUO’s ability to break even in spite of the price slide was mainly due to its more prudent inventory management.

AUO has been among the first LCD makers to cut production on signs of overcapacity to reduce the impact on its earnings. It said slashing capital expenditure served the same purpose.

“As television panels take up an ever larger share of our revenue, we become more exposed to a different kind of cycle that we are still learning to adapt to,” said Lee Kun-yao, CEO. “There is no point in making things you cannot sell.”

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