Chi Mei Optoelectronics (CMO) Reports First Quarter 2009 Results

chi_mei_optoelectronics_cmo_core_valuesChi Mei Optoelectronics (CMO) is the second largest LCD manufacturer in Taiwan, behind AU Optronics (AUO). CMO announced its first quarter 2009 results on April 28, 2009. The news was a mixed bag. Net sales increased but the company posted a net loss.

Major Loss TFT LCD net sales increased 1.3% quarter over quarter to NT$44,260 million in the first quarter. CMO however posted a gross loss of NT$15,953 million for a gross margin of -36%. Operating loss came to a total of NT$20,690 million with a margin of -46.7%. These results are not so good.

Shipments Up CMO’s large-sized (that means 10-inch and larger) LCD panels increased 16% quarter over quarter to 13.3 million units in the first quarter. Blended ASP (average selling price) for large-sized LCD panels dropped 14% quarter over quarter to US$94.

Value Focus ASP dropped 14% Q/Q while unit sales increased 16% Q/Q resulting in an operating loss of NT$20,690 million (-46.7% margin). Based on this information, it seems CMO was focusing on shipping LCD panels that either had value that was eroding faster than the average or just cheaper ones. For instance, if CMO shipped the same LCD panels as it did in the fourth quarter of 2009 (with all other factors unchanged–unrealistic, I know), the company would have posted a profit, since shipments increased slightly more than the ASP drop.

Although LCD factory utilization is important, I believe value creation is more important. Is value created when a factory is run that losses money every time a LCD panel is manufactured? Would it be better if the factory simply stopped? Many times the decision is not clear, especially when you have to consider variables such as momentum (physical as well as psychological) that is difficult to quantify.

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