AU Optronics faces heavy fines in US court

AU Optronics, Taiwan’s biggest flat panel maker by sales, faces the prospect of paying hundreds of millions in fines and seeing top executives jailed should it lose a US criminal trial into alleged price fixing that began this week.

The trial, which started on Monday in San Francisco, represents the last stage of a long-running antitrust investigation that has involved authorities from Europe, South Korea, Japan and the US.

Prosecutors allege that AU Optronics conspired with other flat panel makers to fix prices for its products between 2001 and 2006. According to documents filed when AU Optronics was first indicted in 2010, the US Department of Justice alleges the price fixing had hurt some of the biggest technology companies including Hewlett-Packard, Apple and Dell.

Samsung Electronics was the first to strike a deal with prosecutors, while five other LCD companies including LG Display and Chi Mei Optoelectronics, have all also pleaded guilty. In total, fines of more than $860m were paid to the US authorities.

AU Optronics, however, is the only company to insist it was innocent. In a statement, the company said it “believes that the allegations made by the [Department of Justice] and the large fines the DoJ seeks to obtain are not warranted by the law and facts”.

The company said its executives, including former chief executive LJ Chen, had already paid a high price as they had been forced to stay in the US since being indicted in 2010. There is no extradition treaty between Taiwan and the US, and the DoJ said it considered Mr Chen and the other executives flight risks.

In December 2010, Europe’s antitrust watchdog fined AU Optronics and five other flat panel makers a total of €648.9m ($858m) for anticompetitive behaviour over the same case.

According to European Union officials, the companies met more than 60 times over four years to set prices, production schedules and other commercial conditions. AU Optronics was fined €116.8m but has appealed against the decision. The appeal process is ongoing.

In 2010 AU Optronics took a T$10bn charge onto its balance sheet to cover legal costs and any fines related to antitrust investigations. The company has since insisted that it has no further need to add to that fund.

In terms of the US case, AU Optronics said it “continues to fight because it believes in the integrity of those who have worked tirelessly to make the company what it is.”

To plead guilty would not only “fail to protect the shareholders’ and investors’ interests, but it would also mean rejecting the diligence and hard work of all those who built the company, and instead to cast aspersions on their character and conduct in building the company, which goes against AUO’s core value,” the company said.

The trial comes at a difficult time for AU Optronics and for the broader flat panel industry, which has seen a weakening in global demand due to economic weakness in the US and Europe.

As a result, flat panel prices have fallen by more than one-quarter last year, and most producers now make a loss on every screen they sell, according to Jamie Yeh, LCD Displays analyst at Barclays Capital.

“On the supply side, producers have been quite disciplined in not adding extra capacity, but because demand is weak we still expect a 15 per cent oversupply this year. There probably will not be a meaningful recovery until late 2012 or early 2013,” Ms Yeh said.

However, analysts say AU Optronic’s share price, which fell by half last year, has already factored in the potential financial impact of losing the case, given other flat panel makers had already earlier pleaded guilty.

According to a report by Focus Taiwan, the English-language arm of Taiwan’s semi-government Central News Agency, the US trial could last two to three months.

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