TAIPEI: AU Optronics Corp (AUO), the nation’s No. 2 LCD panelmaker, posted stronger-than-expected quarterly net profit for last quarter as significant improvement in operating expenses helped drive its operating margin to its highest level in 19 quarters.
However, excessive inventory and weak currencies in Europe and in emerging markets are poised to crimp demand this quarter, as evidenced last quarter, during which a weak euro versus the US dollar stalled TV sales in eastern Europe, AUO said.
“We are paying close attention to the movements of the yen, euro and other currencies in emerging countries. We are watching whether foreign exchange [weakness] will adversely affect consumer’s purchasing activities,” AUO chief executive Paul Peng told investors during a teleconference yesterday.
Sagging demand for PCs and mobile phones last quarter also left excessive inventory in the supply channel, which is to curtail demand for small-sized panels, Peng said.
“After a brief break [in demand], we are optimistic about [our business] in the second half. Demand will pick up in the second half after excess inventory is reduced,” Peng said. “Besides, the launch of [Microsoft’s] Windows 10 operating system may stimulate some PC replacement demand.”
AUO expects shipments of large-sized LCD panels to be flat this quarter, from last quarter’s 26.8 million units, as rising demand for bigger and better-definition TV panels will be offset by weak PC demand. Average selling prices of those panels will be little changed, the company said.
Shipments of smaller screens such as those for phones are expected to be flat, or fall by a single-digit percent sequentially from 42.6 million units, it said.
The overall equipment loading rate will be unchanged at 95 percent this quarter compared with last quarter, AUO said.
“While we think that significant demand recovery is unlikely in the second quarter of the year, we expect a soft-landing scenario with moderate panel price decline prior to demand picking up in late second quarter,” CIMB analyst Eric Lin said in a report released last week.
Lin upgraded AUO’s rating to “Add” from “Hold,” citing cheap valuations. He retained his target price unchanged at NT$20.1 based on the stock’s earnings per share of NT$2.1 this year.
Last quarter’s net income contracted 19.8 percent to NT$5.27 billion (US$170.93 million), compared with NT$6.58 billion in the fourth quarter of last year. However, the figure beat analysts’ estimates of between NT$5 billion and NT$6 billion.
On an annual basis, net profits surged from NT$166 million in the first quarter of last year.
Operating margin for its display business rose to 10.7 percent last quarter from 9.3 percent the previous quarter and 1.6 percent a year ago.
AUO cut operating expenses by NT$1.4 billion last quarter from the previous quarter, according to the company’s financial statement.
Describing the company’s strategies to fend off growing competition from Chinese rivals, Peng said AUO would continue to focus on developing advanced products such as ultra-high-definition 4K panels, curved TV panels and cost-efficient touch panels.
AUO aims to seize a 30 percent share of the global curved TV panel market this year.
“We know that China has new investment plans to build 8.5G and 10G plants, but a growth in Chinese capacity does not mean growth in output,” Peng said.