AU Optronics (AUO) may delay the ramp of its hybrid G7.5/8.5 LCD fabrication plant depending on the health of the LCD market in 2009. This is in light of AUO and CMO announcing that they will move forward as planned for G8.5 LCD fab construction just reported days ago.
Many have forecasted a significant oversupply situation in 2009. With a significant amount of LCD capacity coming online in 2009 coupled with a less-than-robust global economy, demand for LCD products might continue to suffer and exacerbate the supply and demand situation. But AUO’s HB Chen, CEO, does not believe that the market will be as bad as others are predicting.
On July 24, 2008 at AUO’s Q2’08 investors conference, Chen conveyed a more positive outlook for 2009 and stated that “unless something uncontrollable happens, the 2009 market will not be too bad.” AUO’s CAPEX for 2009 will be flexible and based on the strength of weakness of the market. The company plans to commence volume production of LCD panels from its hybrid G7.5/G8.5 LCD fab in 2H’09.
The time it takes from groundbreaking to initial production of LCD panels from a fabrication plant takes roughly one year. If CAPEX decisions are made based on what is happening at the moment, by the time the LCD fab is up and running the market situation might be completely different. The difficulty of timing investments toward adding LCD production capacity cannot be underestimated.
AUO’s CAPEX for 2008 is NT$130-140 billion as originally planned but the company is throttling down production to just 90% of capacity in Q3’08. That would mean a utilization rate of roughly 80% to 85% and will help to balance supply and demand. AUO expects large-area LCD panel unit shipments to grow 5% Q/Q and ASPs to decline 5% Q/Q in Q3’08.
Chen is hoping inventories will clear out in mid-August, the Beijing Olympics as well as China’s National Day (October 1) will help fuel demand for LCD TVs. If we look not too far back to the World Cup, international sporting events have very little impact on overall TV sales. Chen might not get what he is hoping for as AUO’s inventory increased to 40 days in Q2’08 versus 33 days in Q1’08.
[tags]AU Optronics, AUO, Display Manufacturer, LCD Manufacturer, G7.5, G8.5, Hybrid LCD Fabrication Plant, LCD Fab, LCD TV[/tags]