AUO cuts forecast on weak flat-screen demand

AU Optronics, the world’s third-largest flat panel maker, cut its forecast for the current quarter on Wednesday, raising concerns over unexpectedly weak demand for flat-screen television sets.

AUO shares closed down 7 per cent - the maximum permitted by market rules - at T$41.85 after the company said it now expected shipments of panels larger than 10 inches – those used for monitors, notebook computers and flat panel TVs - to rise no more than 6-8 per cent quarter on quarter. This compares with earlier guidance of more than 10 per cent growth.

Hui Hsiung, executive vice president, also said that average selling prices for monitor and notebook panels were now expected to slide 15-18 per cent and those for TV panels 10 per cent.

“The lower expectation for shipments is due to higher-than-expected inventory at our customers,” AUO said.

Analysts expressed surprise at the downward adjustment. “While the slide in panel prices has been very visible, the weak expectations for shipments even in the TV segment are worrying,” said Tim Chen, an analyst at CLSA in Taipei.

As the replacement of traditional monitors by flat-screen and desktop PCs by notebooks will lose momentum in the long term, flat-screen televisions are the main hope for growth for the flat panel manufacturing industry. Merrill Lynch recently raised its forecast for global TV panel shipments to 49.1m units this year, up from 25.2m units in 2005.

Mr Chen said the downward adjustment in AUO’s guidance could also indicate that hopes for a large boost in flat-screen TV sales from the football World Cup may be disappointed. “Those who wanted to get an LCD TV for the world cup should all have bought it by now,” he said.

AUO’s competitors in South Korea and Japan, including Samsung Electronics and LGPhilips, have so far not released any warning signs over weakening demand.

But LGPhilips shares fell 3.5 per cent, and shares of Philips Electronics were among the biggest losers in the Euro Stoxx 50 index on Wednesday in the wake of AUO’s announcement on Wednesday.

Chi Mei Optoelectronics, AUO’s smaller rival, surprised analysts in April with cautious guidance on the back of an unexpected jump in inventory. Analysts said on Wednesday that CMO’s surprise figures might have been an early warning sign.