TFT-LCD Panel Makers Face Dropping Profits in Q1

Taipei, Jan. 27, 2006 (CENS)--The profits of Taiwan' s makers of thin film transistor-liquid crystal display (TFT-LCD) panels in the first quarter this year are expected to drop from the fourth quarter of 2005, due to falling monitor-panel prices and saturation in the markets of industrially advanced markets.

Some institutional investors hold conservative or even pessimistic attitudes toward local panel makers' first-quarter operations, and predicted that the earnings of even the most profitable company in the line-AU Optronics Corp. (AUO), the No. 1 large-sized TFT-LCD panel maker in Taiwan-are expected to drop by about 50% in the first quarter.

Some second-tier local panel makers, according to the institutional investors, are even expected to suffer losses in the first quarter due to equipment appreciation costs from their new sixth-generation (6G) production lines and to an over-concentration on monitor panels.

Industry sources said that the quotes for LCD monitor panels have dipped to record lows, and they are expected to continue dropping in the future. The falling monitor-panel prices could have a major negative impact on panel makers' profitability in the first half.

According to some monitor makers, the LCD monitor markets in most industrially advanced nations have become saturated, and the strong demand for such products now comes mainly from third-world countries, but the monitors sold in those countries often go for low prices.

According to data released by Philips Multimedia Flat Displays, headquartered in Taiwan, in 2005 the substitution rate of LCD monitors for older CRT counterparts reached about 84% in Europe, 80% in North America, and 99% in Japan. However, in the Asia Pacific area the rate was 49%, while in Latin America the substitution rate was about 12%.

The prices of 17-inch TFT-LCD panels have dropped by US$10 in the first month of 2006, according to DisplaySearch, the flat panel display (FPD) market research and consulting firm, and are expected to further decline by US$10 in February.

Some institutional investors pointed out that AUO's monitor-panel production ratio in the third quarter of 2005 was 59%, so the company's profits in first quarter might only drop from NT$5 billion to NT$5.5 billion (US$156.25 million to US$171.88 million at US$1: NT$32), compared with about NT$10 billion (US$312.5 million) in the fourth quarter of 2005.

The investors also pointed out that US$140 is the breakeven point for the unit cost of a 17-inch TFT-LCD panel. When the price drops to less than the breakeven point, they added, even first-tier panel makers suffer serious impacts on their profits. In addition, the institutional investors continued, the second quarter is a traditional off-season for LCD monitors, so panel makers' profits might further drop from the first quarter.

According to their forecasts, panels makers with high production ratios of monitor panels such as Chunghwa Picture Tubes, Ltd. (CPT), HannStar Display Corp., and Quanta Display Inc., are likely to report losses in the first quarter after earning profits in the fourth quarter of 2005.

Ratio of Global LCD Monitor Substitution for CRT Counterparts
Region	2005 Ratio	2006 Ratio*
Europe	84%	99%
North America	80%	98%
Japan	99%	100%
Asia Pacific	49%	80%
Latin America	12%	39%

*: Estimate.

Source: Philips Multimedia Flat Displays.