LCD maker reports profit even as prices tumble

LCD panel maker AU Optronics reported record financial results for 2004, despite falling panel prices.

AU Optronics, one of the world's biggest makers of LCDs (liquid crystal displays) used in computers and television sets, reported Thursday that its net income and net profit hit record levels in 2004, despite an industry-wide steep drop in LCD prices during the second half of the year.

AU Optronics, of Hsinchu, Taiwan, said its 2004 net income totalled NT$28 billion (AUD$1.12 billion as of Dec. 31, the last day of the period being reported), an increase of 78.5 percent from 2003 net income of NT$15.7 billion. The company's net sales were also sharply higher at NT$168.1 billion, an increase of 60.3 percent from net sales of NT$104.9 billion in 2003, it said.

Net sales for the fourth quarter totalled NT$39.5 billion, up just 1.9 percent from the previous quarter, the company said. It reported a net loss for the fourth quarter of NT$2.2 billion compared to a profit of NT$4.1 billion during the third quarter.

AU Optronics faced a tough year, as its average selling price for LCDs measuring more than 10 inches across the diagonal rose during the first half of the year to a high of US$281 before dropping sharply to US$215 during the third quarter and US$180 during the fourth quarter.

AU Optronics wasn't the only LCD panel maker faced with a sharp drop in prices. LCD panel makers in general faced severe oversupplies which drove prices substantially lower during the second half of 2004, said David Hsieh, a vice president at market research firm DisplaySearch.

The problem of oversupply became so serious in the fourth quarter that LCD panel makers were forced to sell panels at prices below their production costs, Hsieh said. "Nobody could make money," he said.

AU Optronics was able to offset some of the decline in prices by shipping more large LCD panels. It shipped 5.5 million large panels during the fourth quarter of 2004, compared to 4.4 million in the third quarter of 2004 and 3.6 million in the fourth quarter of 2003, it said.

Rising demand for LCD TVs and monitors has been one positive effect of the sharp drop in LCD prices, Hsieh said. Prices have stabilized and LCD panel makers should be set for a return to profitability during the first quarter of 2005, he said.

"Demand is very strong right now and it will get stronger," Hsieh said, adding that DisplaySearch does not foresee a shortage of LCD panels or a repeat of the severe oversupply situation in 2005.

For its part, AU Optronics expects to see growing demand for LCD TVs result in higher sales of LCD panels during the coming year. Next month it will begin mass production at a sixth-generation LCD panel manufacturing plant that uses glass substrates measuring 1.5 meters by 1.85 meters. A larger glass substrate means that more large panels can be produced from a single piece of glass, helping to cut production costs and raise manufacturing capacity.

AU Optronics has already produced pilot runs of 33-inch panels for LCD televisions and 19-inch panels for computer monitors at the sixth-generation plant, it said.

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