LCD TV Panel Prices Expected to Fall 7 Percent Q4, AU Says

AU Optronics’ Q4 LCD TV panel prices will tumble 7 percent from the previous quarter as CE manufacturers burn off 1 to 1 1/2 weeks’ worth of excess inventory across the North American industry, analysts said. The exact size of the oversupply wasn’t immediately available, but strong retail sales during the holiday season could stabilize TV panel prices by year-end, Julie Chan, AU director of investor relations, said Wednesday on an earnings call.

AU Optronics’ Q3 average selling price for 10-inch and up TV panels slipped to $244 from $247 in the previous quarter but was up from $243 year to year, the company said. The average TV panel size increased to 34.6 inches from 34.1 inches and the “mainstream model” is shifting toward 40 inches, said Paul Peng, executive vice president of display at AU. TV prices started to decline in August and were down 1 percent in Q3, Chan said. In 10-inch and up notebook and PC monitor panels, ASPs dropped 16 percent from Q3 to $57 and were down from $68 year over year, she said.

AU’s ASP per square meter slid to $792 from $847 last quarter and $899 year to year, mainly because of an inventory buildup in notebook and PC monitors, Chief Financial Officer Andy Yang said. To offset declining ASPs, AU was able to reduce component costs 3 percent in Q3, including those for LEDs, company officials said. LED-equipped LCD TV panels doubled from Q2 to 30 percent of production, Peng said. LED backlit panels will be 35 percent of TV panel manufacturing by year-end and will exceed 50 percent in 2011, Peng said.

The build-up in LCD panel inventory forced AU Optronics to slash factory utilization to 83 percent from more than 90 percent in Q2, Avian Securities analyst Andrew Abrams said. Much of the capacity was cut at fifth-generation and smaller plants that make panels for notebooks and PC monitors, where utilization was running at 72 percent, he said. At factories producing LCDs for TVs, production was running around 90 percent, Peng said. Among AU’s LCD TV panel customers are Sony and Vizio, he said. In light of the capacity cuts, AU’s inventory dropped to 40 days from 43 days, company officials said.

As a sign of lower production, AU has spent about $1.85 billion through Q3 and may come up short of the $3.25 billion targeted for this year, Yang said. The company said it spent $591 million on capital projects in Q3. AU moved some costs tied to a second 8G production line into Q1, when it is scheduled to begin manufacturing with a 40,000-substrate maximum monthly capacity, Abrams said. The company didn’t disclose a forecast for 2011 capital spending, but the production ramp on the 8G line is the major expense. AU has aired plans to build a 7.5G factory in China but hasn’t decided when to do that, analysts said.

AU also will start making active matrix OLED panels for smartphones in Q2 along a reconfigured 3.5G LCD line with monthly capacity for 7,000 substrates, Peng said. And the company will convert a 4.5G line in Singapore it acquired in buying Toshiba’s low-temperature polysilicon plant (CED April 1 p3) to make AMOLEDs starting in 2012, he said. AU, which licenses some phosphorescent OLED technology from Universal Display, halted OLED production in 2006, resumed plans last year.

AU’s Q3 net income shrank to $7 million from $241.4 million a year earlier, as gross margins plunged to 5 percent from 11.7 percent amid the downturn in pricing. Q3 revenue increased to $3.98 billion from $3.61 billion a year earlier. Shipments of panels 10 inches and larger rose to 28.67 million units, up 7.4 percent from a year earlier, the company said. Deliveries of smaller LCDs plunged 14.2 percent from a year earlier to 55.59 million units, the company said. LCD TV panels accounted for 56 percent of sales, up from 51 percent in Q2 and 47 percent year to year. PC monitor and notebook panels were each 13 percent of sales, down from 19 and 18 percent in the earlier periods.