AU sees tight LCD supply, strong demand

By Baker Li

TOKYO (Reuters) - Taiwan's AU Optronics (2409.TW: Quote, Profile, Research, Stock Buzz), the world's No.3 LCD maker, said on Thursday that robust demand for computers and LCD TVs is likely to cause a tight supply of panels soon, and new PC models will further drive growth into next year.

Despite concerns over a slowing U.S. economy, research firm DisplaySearch has said demand for laptop PCs that use liquid crystal displays (LCDs) will be strong from emerging markets, including China, Brazil, Russia and India, in the next two years.

"We've been watching subprime, inflation and oil prices ... but the recent U.S. economy looks better, we are cautiously optimistic," AU (AUO.N: Quote, Profile, Research, Stock Buzz) Chief Executive Officer H.B. Chen told the Reuters Global Technology, Media and Telecoms Summit. "For the second half, we know the third quarter is a hot season, so supply will be a bit tight," said Chen, whose company supplies LCDs to top PC sellers such as Dell Inc (DELL.O: Quote, Profile, Research, Stock Buzz) and Hewlett-Packard Co (HPQ.N: Quote, Profile, Research, Stock Buzz) and some TV brands.

Chen's forecast came one month after AU posted its second best quarterly profit for the first quarter, while AU has said it expects shipments and prices of PC and TV panels to be mixed in the second quarter, with PCs faring better.

All the company's laptop LCDs will be illuminated by LED backlights, which save more power than the conventional cold cathode fluorescent lamps (CCFLs), by 2011, as part of its efforts to make environmentally friendly products.

AU expects strong demand for flat panels for smaller monitors that can show high-definition TV programs -- known as moniTVs -- whose screen sizes range from 15 inches to 32 inches.

"The trend is moving to bigger screens, but we will not focus only on larger size," said Chen, who expects global demand for moniTVs to double to 50 million units next year from this year.

CAPEX

Major LCD players have learnt a lesson from the last downturn, when over-optimistic producers flooded the market with too many panels, and are focusing on moderating spending plans and cutting costs.

AU will allocate at least T$100 billion ($3.3 billion) for its capital expenditure in each of the next two years, compared with this year's forecast of T$140 billion, but the budget can be adjusted depending on market conditions.

"We have a buffer to do that and the bottom line is if we are still profitable then we have more room to invest," Chen said.

In Taipei, AU shares closed up 0.5 percent on Thursday, defying a 0.1 percent fall on the main TAIEX .TWII index.

Competing with two bigger South Korean rivals, LG Display (034220.KS: Quote, Profile, Research, Stock Buzz) and Samsung Electronics (005930.KS: Quote, Profile, Research, Stock Buzz), AU has announced a longer-term plan to build a new factory using more advanced 10th generation or higher technology for making LCDs.

Chen said there will be a small-scale production by 2011 or 2012 but it has not yet decided on the glass size.

But this year, there's a concern about the impact from the deadly earthquake in China as the market had bet that the Beijing Olympic Games in August is set to fuel demand for LCD TVs.  Continued...